Yanxiu Gu, Fund manager, ODDO BHF China Equity Stars, at ODDO BHF AM
February 2026
After three years of bear market, China is again attracting interest from international investors according to us. The turning point came in late September 2024, when Beijing launched a strong stimulus package, monetary, fiscal, regulatory, and with an unprecedented highlight on equity market. And in 2025, the Chinese equity market recorded a performance of, about 28% in local currency and 13% in Euros as end of December (source: MSCI China All shares index).
The primary force behind this rally is improved liquidity and sentiment toward Chinese assets. According to Goldman Sachs’ analysis, global hedge funds, emerging-market funds, and ex-US global funds have all increased their exposure to China. At the same time, domestic insurers and households have been reallocating financial holdings toward equities. We believe the potential inflows could remain significant, as households have low incentives to save for property and as money-market returns decline from past highs. We think that the Chinese government is firmly committed to developing financial markets to restore local confidence, offset wealth losses linked to the real estate crisis, and create sustainable wealth for households. According to us, the process is still at an early stage and involves both opportunities and risks for investors.
A Year of Renewal and Reinvention
The year 2025 has been particularly eventful for China, marked by a surge of innovation. You may be familiar with the launch of DeepSeek beginning of this year – a language model developed in China. It made global headlines, not only because it shows China’s technological sophistication, but more importantly because it reveals something deeper: China is innovating, quickly, and at a fraction of the cost of American tech giants. Long considered the world’s factory, China is now gradually positioning itself as a major technological power.
And it didn’t happen overnight. Two decades ago, China was nearly invisible in global innovation rankings. Today, it leads in 57 out of 64 key technologies, from defense and artificial intelligence to biotechnology and quantum computing (source: Australian Strategic Policy Institute).
Think of the world’s drones -70% are made by DJI in Shenzhen (source: New York Times). You probably have also heard of the Chinese super-fast charge electric cars or seen the dancing humanoid robots. Do you know that China has become a supermarket for global pharma companies as they face healthcare budget pressure and patent expirations? By value, in the first half of 2025, about one third of global innovative drugs are licensed from Chinese biotech or Chinese biopharma firms, up from single-digit percentages just three years ago, according to international broker Jefferies’ analysis.
Vigorous Chinese Consumption amid Deflationary Pressure
It’s true that consumption has been slower to recover — inflation remains close to zero, and deflationary pressures persist. But if you look closer, you will find striking consumer trends: long waiting lines outside local luxury shops of Laopu Gold, bubble tea of Mixue or Chagee on young Chinese’ hands, replacing Starbucks coffee across lower and higher tier cities. Foreigners are taking over the popular destinations in China as Chinese government removes or simplifies visa requirement for 55 countries. And at global stage, Chinese lifestyle brands and pop-culture products such as the viral fashion toy Labubu have captured global attention across demographics. (Company examples do not indicate stock recommendation)
Renewed Government Attitudes
In 2025, investors also saw encouraging signals from Beijing. The most symbolic moment is the handshake between Alibaba’s founder Jack Ma and President Xi Jinping. It was more than a photo — it marked an important improvement in relations between government and entrepreneurs, and renewed support for the private sector.
Beyond symbolism, the government is tackling deeper structural issues. In July, the “anti-involution” policy was introduced — designed to curb over-competition and prevent companies from chasing growth at the cost of profitability. It’s a policy that investors have long hoped for: a path toward healthier corporate returns and stronger fundamentals, while not eliminating the significant risks that remain on the Chinese equity market.
Navigating Geopolitics
Of course, no story about China in 2025 is complete without geopolitics. The “Tariff Show” initiated by Donald Trump in April created one of the year’s market troughs, followed by another when China announced rare-earth export controls. Yet, the Chinese market subsequently climbed out of the trough quickly.
Recent Trump -Xi talks ended on a constructive note in South Korea, since both countries realized that China held a strategy card, a strong lever to play, that is rare earth, knowing that China controls 90% of refining capacity of real earths, and it could take 10 years for the US to get rid of China’s role.
A Valuation Gap, not Trap
For years, Chinese companies have often traded at valuation multiples below those of their global peers— partly because global investors doubted their ability to innovate or deliver strong profits. But that perception is outdated.
Yes, margins of Chinese companies remain slightly below those of American companies — less than 10% — but they are still trading at a discount of about 40%. On a free cash-flow yield basis, Chinese equities now offer superior returns (source: Bloomberg estimates). This disconnection between intrinsic value and market price presents a compelling opportunity for long-term investors, according to our analysis.
Our In-house Expertise
To manage to navigate in this volatile market, it is important to understand the long-term trends in China. Only the long-term themes can drive long-term value. According to us, China is transitioning from a labor-based economic model to a technology-driven model, while bolstering its energy self-sufficiency amid its technology race. The aging population presents both a huge challenge and potentially great opportunities for new consumption trends. Crucially, Chinese companies are increasingly competitive in the global market — some are already global leaders with global manufacturing, international supply chain and global R&D capabilities.
In June 2025, ODDO BHF Asset Management launched ODDO BHF China Equity Stars* — a reflection of our conviction in China’s long-term growth story. Built on a rigorous five-step investment process, the fund selects companies from more than 7,000 listed Chinese firms across Shanghai, Shenzhen, Hong Kong, and the U.S. markets. The fund leverages artificial intelligence tools, along with our in-house quantitative tool and fundamental analysis to identify the Chinese companies that are best positioned according to us to benefit from China’s structural transformation.
Beyond the US “Magnificent Seven”, which are already quite crowded and expensive, European investors should look east. China can offer diversification, long-term growth potential and exposure to key structural themes, but any investment in this market involves specific risks (including market, sector, regulatory, liquidity, currency and emerging market risks) that must be carefully considered with a financial adviser.
