China is getting its mojo back

After years of underperformance the Chinese stock market had strong gains at the beginning of 2025, giving investors confidence that the country might be getting some of its pre-COVID mojo back.  

While underlying concerns about the world’s second-largest economy such as weak consumer demand still persist, the A$170 billion Aware Super said China is too significant a market to not invest in. 

“It’s really hard for any global investors to completely ignore China,” head of equities Agnes Hong told the Top1000funds.com Fiduciary Investors Symposium in Singapore.  

“I do think, though, that there’s been a bit of a shift recently in investment sentiment.  

“In late last year, we are seeing a lot of inflows back into China, especially with the ADRs (American depositary receipt) list in the US away from some of those EM ex-China products.” 

Hong also made the distinction between the Chinese market rallies in last November and this year. While the former was driven by top-down stimulus policy announcements, the latter is related to bottom-up factors where investors are re-evaluating Chinese companies after DeepSeek launched its breakthrough AI model.  

In February, Chinese president Xi Jinping also met with business leaders in the country – including Alibaba’s Jack Ma, who has been away from the limelight in 2020 – in a signal that the nation is shifting to a friendlier stance towards the private sector.  

That was followed by more supportive economic policies, announced in the nation’s top annual political and social meetings the Two Sessions in March, to boost consumer spending and stabilise risky areas including real estate and local government debts.  

“You’ve got one hand, the bottom-up rally, and then the other hand supported by the government policies. So that’s why I think there’s a lot of sentiment that [in] this rally, the momentum could have room to grow,” Hong said.  

But due to the complexity of the Chinese market, Hong said it is critical for allocators to recognise that how they gain access to it is just as important as the capital allocation. Choices like onshore vs offshore equities, active vs passive, and state-owned enterprises or the new economy including service-led sectors, all matter.  

Aware Super was one of the first Australian super funds to receive a QFII license in 2016, which allows foreign investors to participate in mainland China’s stock market. Its public equity exposure is far greater than its private equity exposure and is mostly managed by EM and global active managers both onshore and offshore.  

“We have to go down to the granular level [when investing in China],” Hong said.  

“It’s very dangerous to paint a whole country or even a whole sector with a broad stroke. So what we are all about is selectivity over broad beta. As long-term investors, we are looking at some of those security selection opportunities.” 

UK investor Coal Pension Trustees, which oversees about £20 billion of investments in Mineworkers’ Pension Scheme and the British Coal Staff Superannuation Scheme, is an equity investor in China but also has exposure to liquid credit.  

Chief investment officer Mark Walker said it is somewhat an “unusual” fund, in the sense that it has a mature profile but the British government is its guarantor. It still takes a lot of investment risk, and in 2018 China was the perfect place to get it.  

Today, around 12 per cent of Coal Pension Trustees’ private equity portfolio is still in Chinese funds, but it stopped committing new capital three years ago.  

“We pay out in pensions about £1.6 billion a year, so our payout ratio is about 8 per cent. Cash flows are absolutely critical,” he said.  

“The biggest issue with China, and actually legacy private equity more generally, for us, is not whether we still think we’ve got good investment, but when we actually get the cash back. 

“We have to sell over a billion pounds of assets every year just to pay pensions, so if we don’t get the cash flow from Chinese private equity, in this case, then we have to get it from somewhere else.”