The Resilient China Trade: Why Global Investors Should Reallocate to Undervalued Asian Equities in 2025

The global investment landscape in 2025 is marked by a stark contrast: while Western markets grapple with inflationary headwinds and geopolitical uncertainties, China's economy is showing surprising resilience. For investors seeking high-growth, low-valuation opportunities, the time is ripe to rebalance portfolios toward undervalued Asian equities—particularly A-shares and Hong Kong-listed Chinese stocks.

China's Economic Recovery: A Tale of Two Sectors

China's Q2 2025 GDP growth of 5.2% year-on-year (bringing the first-half average to 5.3%) has exceeded expectations, driven by industrial output and export strength. Industrial enterprises saw a 6.4% surge in value-added output, with high-tech manufacturing and equipment sectors outperforming the average by double digits. The services sector, now contributing 5.5% growth, is also rebounding, particularly in IT, logistics, and business services.

However, the recovery is uneven. Domestic consumption remains cautious, with retail sales growth cooling to 4.8% in June, and the property sector continues to drag, with real estate investment down 11.2% year-on-year. These imbalances create a compelling case for investors to focus on sectors and geographies where China's structural strengths—like its advanced manufacturing base and export prowess—can deliver outsized returns.

The A/H Share Premium Compression: A Golden Opportunity

For years, A-shares traded at a premium to their Hong Kong-listed (H-share) counterparts, a reflection of mainland investors' preference for onshore markets. But by mid-2025, the A/H premium has narrowed to a five-year low of under 30%, a shift driven by inflows of $110 billion via the Stock Connect program and a strategic reallocation by mainland investors. This compression signals that H-shares are now undervalued relative to A-shares, offering a unique arbitrage opportunity.

Consider BYD (002594.SZ / 1211.HK), a dual-listed electric vehicle and renewable energy leader. The Hong Kong-listed version trades at HK$132.2, a 28.2% discount to its estimated fair value of HK$184.06, while the A-share trades at a 20% premium. Similarly, Everest Medicines (1833.HK) and Bosideng International Holdings (241.HK) are trading at 49% and 23% discounts to their fair values, respectively, with robust revenue growth projections of 29.8% and 41.4%.

Why Hong Kong? Strategic Positioning in a Fractured World

Hong Kong's strategic role in the U.S.-China rivalry and its access to global capital markets make it an attractive hub for investors. The city's P/E ratio of 15.44 as of July 17, 2025, is a “fair” valuation compared to global benchmarks like the All World Index (P/E 20.88) and the MSCI EAFE (P/E 16.93). This undemanding valuation is further amplified by policy tailwinds, including relaxed property purchase restrictions and a temporary U.S.-China tariff truce in June.

Goldman Sachs, in its 2025 China equity outlook, calls this a “risk-reward sweet spot.” The firm projects a 20% rise in Chinese benchmarks by year-end, with H-shares up 12% and A-shares up 17%. The firm's rationale? A weaker yuan boosting exporters, falling domestic interest rates, and record-breaking shareholder returns. For example, CNOOC (0883.HK) offers a dividend yield of 10.87%, while Industrial and Commercial Bank of China (1398.HK) yields 6.55%, making them compelling income plays.

Policy Tailwinds: From Tariff Clarity to Infrastructure Spending

The U.S.-China tariff truce in June 2025 has provided a near-term boost to exporters, with ASEAN and African exports surging 16.8% and 31.8% in June. This diversification away from the U.S. market is a structural trend, with Belt and Road Initiative (BRI) partner countries accounting for over half of China's total trade.

Domestically, the government is deploying targeted fiscal and monetary tools to stabilize growth. Infrastructure spending, particularly in high-tech and green sectors, is accelerating. The People's Bank of China's interest rate cuts are spurring credit expansion, while consumer subsidies for green appliances and EVs are reigniting demand in upgraded consumption categories.

Actionable Advice for Investors

For global investors, the key is to focus on high-conviction, low-valuation names with strong policy tailwinds:
1. Exporters: Tsingtao Brewery (0126.HK), Guangzhou Baiyunshan Pharmaceutical (0334.HK), and CNOOC are benefiting from trade diversification.
2. High-Tech Manufacturing: Bosideng International Holdings and Everest Medicines are undervalued innovators in sectors prioritized by the government.
3. Dividend Plays: China Construction Bank (0939.HK) and ICBC offer attractive yields with solid balance sheets.

The Bottom Line

China's economic recovery may be uneven, but its structural strengths—industrial modernization, export resilience, and a narrowing A/H premium—make it a compelling destination for global capital in 2025. With valuations at a 47% discount to U.S. equities and policy support from both Beijing and global institutions, now is the time to reallocate to undervalued Asian equities. For those who act decisively, the rewards could be substantial.

As the old adage goes: “Buy when there's blood in the streets.” In 2025, the blood is in Hong Kong's stock market—and the opportunity is clear.