Bank of America strategists are cautiously optimistic about the potential for a broader rally in Chinese stocks, particularly following the National People's Congress (NPC) set to commence on March 5, 2025.
The current rally has primarily benefited technology sectors, but expectations are that the NPC may catalyze a shift into a wider market spectrum, especially among stocks poised to gain from stimulus measures.
In a report published on February 17, 2025, titled "Equity Strategy – China: Structurally optimistic, but be patient," BofA's equity strategists anticipated that the upcoming NPC could prompt a more diversified market upswing, with stimulus recipients likely to see increased interest. This comes as the Chinese economy faces headwinds from tariffs and a general slowdown in economic activity.
BofA economists, in their "China Watch" note from February 14, 2025, also foresee a significant government bond issuance and increased fiscal spending. These measures are expected to support domestic investment and consumption, despite the risks of heightened US tariff actions.
However, the weakest stretch of sequential growth in China is projected to occur in the second quarter of 2025, but the delayed effects of policy stimulus might spur a recovery in China’s imports afterward.
Historically, there has been a three-quarter delay between an uptick in China’s credit impulse and a corresponding rise in its imports from the global market. BofA's China sentiment measure, which reflects forward-looking market expectations, may rebound sooner, suggesting that investor confidence could see an earlier restoration in anticipation of the economic recovery.
