Rising U.S.-China tensions and the long-term outlook for Chinese equities
13 OCT, 2025
Comment by Elizabeth Kwik, Head of Asian Equity Investments at Aberdeen Investments
Last week, we once again witnessed a surge in tensions between China and the United States, when on Thursday the Chinese Ministry of Commerce announced an expansion of restrictions on rare earth exports, extending limitations to foreign exporters and technologies related to rare earths. The following day, the Trump administration responded swiftly by imposing a 100% tariff on all Chinese products, in addition to the existing ones. These measures come just ahead of the planned meeting between Trump and Xi at the APEC summit later this month and have reignited concerns about a new trade war.
Reflecting the renewed investor unease, Chinese stocks and Asian markets in general mostly closed in the red today. While some of this could be short-term noise and profit-taking after recent gains, the retaliatory measures may be more about posturing ahead of the summit.
There is a possibility that both sides will ultimately find common ground to limit the impact on the markets, and in particular, Trump has previously eased tensions when U.S. stocks and bonds began to feel the effects of such escalations. Additionally, he appeared more conciliatory on Sunday. We will continue to monitor the situation closely.
That said, we remain increasingly optimistic about Chinese equities over the long term. This year, mainland markets have delivered exceptional performance, outperforming both U.S. and major Asian markets. External pressure could drive further domestic stimulus, which is key to turning the economy around. Recent anti-deleveraging policies from the government demonstrate that it takes economic growth protection seriously.
From a structural perspective, signals remain favorable: valuations are below their five-year average, household savings are high relative to market capitalization, and margin financing remains within historical limits. Adding to this are several powerful local thematic factors — artificial intelligence, semiconductors, robotics/humanoids, and renewable energy storage — making the long-term outlook for China very attractive.
