In the context of an increasingly complex global political and economic environment, fluctuations in overseas policies pose new challenges to China's Capital Markets. However, with the continuous implementation of policies and the rise of structural Industries, investors are expected to capture more high-quality investment opportunities in the upcoming year of 2025.

Multiple analysts from foreign public funds have stated that, in the stock market, through optimizing the consumer structure, increasing domestic demand, and implementing a diversified export strategy, China's market still holds abundant investment opportunities. In the bond market, active fiscal policy and adjustments in MMF policy have effectively alleviated the "asset shortage" phenomenon in the bond market, enhancing the allocation value of Bonds.

In response to external disturbances, where are the market opportunities.

Looking ahead to next year, the Lobo Fund analysis predicts that in the first half of the year, the USA is likely to maintain interest rate cuts, and the domestic market can take advantage of the window period to implement policies; in the second quarter, observe the effects of policy implementation, and in the second half of the year, the economy is expected to initially show signs of recovery.

Meanwhile, the Lobo Fund believes that the dual impact of geopolitical tensions and higher-than-expected inflation in the USA may force the Federal Reserve to raise interest rates in the second half of 2025, which will increase the Outflow and currency depreciation pressures faced by Emerging Markets, potentially entering a new round of policy gaming by the end of 2025.

Regarding the impact of overseas policy changes, Zhu Liang, Deputy General Manager and Chief Investment Officer of the Alliance Fund, believes that China has strong resistance capabilities in coping with external pressures.

Zhu Liang analyzes that, firstly, since 2018, China has significantly diversified its export destinations; the proportion of exports to Developed Markets has decreased from 60% in 2004 to 43% in 2023, while exports to the Belt and Road Initiative Concept and Emerging Markets have increased from 31% and 28% to 46% and 35% respectively. These data indicate that China is striving to achieve a balanced allocation of export destinations and reduce reliance on a single market.

Secondly, China is actively laying out production capacity Overseas, such as establishing production bases in Mexico and Vietnam, to address related risks through geographical diversification. In addition, Zhu Liang points out that the main purpose of the USA's tariff policy is to bring manufacturing back to the homeland; while some manufacturing may flow back, large-scale repatriation may be difficult to achieve.

Finally, Zhu Liang emphasized that the A-share market has long relied more on domestic demand. The proportion of domestic demand in the revenue of listed companies in our country is high, while reliance on external demand is relatively limited. This means that, despite facing overseas policy pressures, the performance of the A-share market is more dependent on the healthy development of the domestic economy and the expansion of the consumer market. With the continuous growth of domestic consumption in our country, the A-share market is expected to maintain steady growth in a complex international environment, and the dual drivers of domestic and international will provide more opportunities for investors.

Stock market: Coordinated efforts from policy and domestic demand.

Loomis Sayles Fund believes that the most relevant aspect for A-shares is the direction of consumer spending. Firstly, the trade-in policy is expected to boost support for service consumption. As a labor-intensive industry, although faced with insufficient demand, it leans more towards labor compensation in terms of income distribution. Increasing support for service production and consumption will become a key link to activate the economy, with the transmission chain leading from an increased share of services, to a higher proportion of labor compensation, and then to an increase in the consumption rate of residents. It is estimated that the elasticity of the retail sales growth of consumer goods may increase by 2 to 3 percentage points.

Secondly, Loomis Sayles Fund pointed out that government consumption accounts for about 16% of our GDP, which remains low compared to international standards, indicating a significant room for improvement in government consumption.

Shroders' Fixed Income Director, Shan Kun, stated that overall, Shroders maintains an optimistic attitude towards the equity market in 2025. Despite facing dual challenges both internally and externally, there are many structural industry and stock investment opportunities expected to emerge through the continuous acceleration of cultivating new economic models and emphasizing the importance of internal circulation.

Shan Kun suggested that in asset allocation, there should be a greater tilt towards the equity market and an appropriate adjustment of the proportion of fixed income assets. For the domestic market, adhering to the principles of "security, liquidity, and profitability," it is necessary to increase allocation in equity market indices while retaining relatively stable fixed income assets as a ballast.

Shroders' Deputy General Manager, An Yun, added that the current areas showing significant policy effects are still the traditional early-cycle industries, such as Real Estate, Autos, and home appliances. Key market concerns include the continued recovery of property transactions and the continuation of trade-in subsidies.

An Yun stated that Shroders' strategy is to continue looking for structural opportunities, first focusing on the investment value of dividend-paying companies after adjustments, and then seeking breakthroughs in domestic demand. Additionally, Shroders is optimistic about the Autos industry, believing that after undergoing market reshuffling, the competitive environment has improved, especially in the electric vehicle sector, where there remains significant potential in both domestic and international markets.

Cheng Yu, general manager of Allianz Fund Research Department, maintains a relatively optimistic outlook on the future market trends, believing that the market is likely to form a pattern of 'dividends setting the stage, technology performing'. Cheng Yu expects that by 2025, the A-shares will continue to trend upward with the support of corporate profit growth and strong policy backing. He focuses on industries and companies that show significant improvement in future corporate profits and fundamentals.

Bond Market: The bottom warehouse allocation logic still holds.

Loomis Sayles Fund points out that in 2025, there are still some uncertainties in real estate. On one hand, interest rates on mortgages are being lowered; on the other hand, income expectations need to be raised to reverse asset price expectations.

Regarding monetary policy, the report on the implementation of monetary policy in the third quarter of 2024 emphasizes 'making promoting a reasonable rebound in prices a key consideration in grasping monetary policy and pushing prices to remain at reasonable levels'. With actual interest rates staying high, deposit rates are expected to continue to decline.

Loomis Sayles Fund analyzes that from a mid-term perspective, whether the yield curve will end the three-year trend of decline depends on whether the price pressure under overcapacity can be alleviated. From the issuance of policies on the supply and demand side to the de-stocking of capacity pressure, the trend of industrial product prices rebounding will require a long time for transmission and verification.

Dan Kun states that the current bond market shows an 'asset shortage' trend. However, he points out that the core factors for a turnaround in the bond market have almost all not occurred, including the shift in monetary policy and the resurgence of inflation expectations. 'Although the trend of declining yields is evident, we still firmly believe in the logic of the bond market as the bottom warehouse for family asset allocation,' said Dan Kun.

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