As global investors start to rotate out of U.S. equities and into European markets, another region may quietly be setting the stage for a stronger-than-expected rebound: China.
U.S. Equities: Signs of Fatigue?
After a decade of strong gains, U.S. stocks have begun to show signs of plateauing. While the economy remains relatively healthy, rising interest rates, sticky inflation, and geopolitical uncertainty have tempered investor enthusiasm. Tech stocks, in particular, have come under pressure as valuations are being re-examined in a higher-rate environment.
Europe: The New Darling?
Recent data shows that European equity funds are enjoying their largest 4-week inflows in nearly a decade. The surge is fueled by renewed government spending, particularly in defense and infrastructure, as European nations respond to a changing geopolitical landscape. However, questions remain about whether this momentum can be sustained, especially given Europe’s historically slower growth and higher regulatory burdens.
China: Undervalued and Underestimated?
Chinese equities, long battered by regulatory crackdowns, trade restrictions, and property market turmoil, may finally be turning a corner. The government has recently taken a more supportive tone, introducing stimulus measures and easing monetary policy to support domestic demand.
Moreover, Chinese companies are showing resilience on the global stage. Reports that Chinese suppliers are refusing to absorb U.S. tariffs, even when pressured by retail giants like Walmart, signal growing pricing power. That could point to stronger fundamentals than many investors assume.
Relative Valuations
- U.S. stocks remain expensive on most metrics, with the S&P 500 still trading well above its historical average P/E.
- European stocks are cheaper, and recent inflows reflect rising optimism. However, many see them as a tactical rather than long-term play.
- Chinese stocks are arguably the most undervalued of the three, with some indexes trading at 10x forward earnings or less. If confidence returns, the upside could be significant.
The Bottom Line
As capital shifts globally, investors are rethinking what “growth” looks like in a multipolar world. While Europe is enjoying a moment in the spotlight, and the U.S. continues to dominate in tech and innovation, China’s combination of low valuations, economic stimulus, and global trade influence could make it one of the most interesting regions to watch in 2025.
Is now the time to revisit Chinese equities?