What could the Chinese New Year have in store for investors?

The beginning of a new year usually presents opportunities to reflect on what’s been and what may be to come.

Last year was the Year of the Snake. Typically associated with wisdom, it symbolises transformation, because of how a snake sheds its skin.

But after some difficult years for the Chinese economy, was 2025 the year of transformation, and what’s the investment case heading into the Year of the Horse?

This article isn’t personal advice. If you’re not sure an investment is right for you, ask for financial advice. All investments and any income from them can rise and fall in value, so you could get back less than you invest. Past performance isn’t a guide to the future.

Is China’s economy in good shape?

For the second year in a row, China’s economy grew 5% in 2025, achieving the government’s growth target.

The continued expansion was driven partly by exports, which pushed the country to a record trade surplus of $1.19tn. This was despite uncertainty caused by US-imposed tariffs. With President Trump’s re-election leading to increased geopolitical tensions, China made efforts to diversify its export market and deepened trading relationships in Africa and Southeast Asia.

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Domestically, weak consumption persists. While consumer sentiment is slowly improving, it’s still negative and some way off the level seen before 2021’s property sector crash. And boosting consumer demand is a key government objective.

From a stock market perspective, the year was strong.

The MSCI China benchmark rose 23.42% in the 12 months to the end of January 2026. This followed a positive end to 2024, when the government announced a series of stimulus measures to support the ailing economy.

A stock market delivering growth is a welcome return to form for a country which endured a bleak period when recovering from a strict zero-Covid policy. That said, China underperformed the broader emerging markets sector in the last 12 months. China makes up over a quarter of the index but its performance lagged peers like Taiwan and South Korea.

Despite this recent reversal in performance, investors continue to shun China as a standalone investment. Flows into the IA China/Greater China peer group were negative again in 2025, although money left these funds at a slower rate than in 2022-2024.

What can we expect from China this year?

The target for economic growth this year has yet to be finalised by the government, but it’s expected to come in at 4.5% - 5%. For a country that, pandemic aside, finds a way to reach its targets, this is an important acknowledgment that growth may be slowing. Remarkably, it would be the lowest target set by the government since the 1980s.

China will aim to operate a ‘moderately loose’ monetary policy in 2026, as part of continued attempts to raise domestic demand. Interest rates have already been lowered from 3.65% at the start of 2023 to the current 3%. The People’s Bank of China are balancing a deflationary environment with a currency that remains weaker.

China’s latest Five-Year Plan, the government’s 15^th set of initiatives since the first in 1953, covers the years 2026-2030. At the centre is expected to be a focus on modernising industries and establishing a technological self-reliance.

With artificial intelligence (AI) innovation a dominant theme in global markets, China has often found itself on the wrong side of export controls.

The US has frequently placed strict controls on China’s ability to acquire the most advanced semiconductors, like those used for AI. As a result, China has been forced to develop these technologies domestically.

Many Chinese companies, like semiconductor manufacturer GigaDevice, are opening themselves to foreign investors in a bid to fund further research and development. The reaction of investors to new listings suggests these companies have plenty to offer.

One year on from the launch of the market shaking DeepSeek AI model, more Chinese companies are preparing to launch their own low-cost AI platforms.

Company valuations in China have risen as the market has started performing, but they’re still lower than both broader emerging and global markets. Pair this with expectations of robust earnings growth, particularly from technology and consumer discretionary sectors, and China has a potentially compelling investment case again.

While issues that have plagued their economy in recent years persist, there’s evidence that things are improving. That said, there’s still some way to go.

Investment ideas for China

Investing in funds or investment trusts isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest and make sure any new investment forms part of a long-term diversified portfolio.

Remember, all investments can fall as well as rise in value, so you could get back less than you invest. For more details on each fund, its charges, and specific risks, see the links to their factsheets and key investor information.

Emerging markets are higher risk and investors should expect volatility. A fund invested in a single emerging market like China should only make up a small amount of a well-diversified investment portfolio.