SFC Chief Correspondent Shi Shi in Tianjin
Amid rising global uncertainties, China’s economy maintained steady and positive momentum in the first half of 2025, demonstrating notable resilience and vitality.
In an interview with Southern Finance, Thomas Fang, Head of China Global Markets at UBS, noted that China’s strong first-quarter performance was largely driven by decisive and sustained policy support since late last year. While signs of divergence emerged in the second quarter, high-frequency data continue to reflect solid growth across consumption, investment, and exports.
Fang also emphasized that global investor interest in Chinese assets has been rekindled since the fourth quarter of last year. With A-shares and Hong Kong stocks still trading at a discount, he sees potential for valuations to return to historical averages—or even command a premium. As supportive policies continue and market confidence gradually recovers, Fang believes China’s capital markets could become a key destination for international portfolio diversification.
Expect more policies in the areas of consumption and demand
SFC Markets and Finance: We are now at the mid-year point and would like to ask you to review the state of China’s economy in the first half of the year.
Thomas Fang: China’s economic data for the first quarter was quite impressive. This came against the backdrop of the fourth quarter of last year, especially around September, when there was a major shift in policy and stimulus efforts. I believe the overall economic momentum has remained very strong.
In the second quarter, however, we will see some divergences, especially due to certain uncertainties brought by tariffs. But looking at higher-frequency data, the overall picture in May still shows relative resilience. Whether it's in consumption or in areas like investment and exports, we’ve seen some encouraging figures.
That said, there is still some downward pressure on prices. We hope to see more momentum from the economy itself, as well as on the policy front, to further drive growth in the second quarter.
SFC Markets and Finance: Do you expect more policies in the second half of the year？
Thomas Fang: In fact, the policy logic is quite clear. If it’s not enough, then more support will be added—right? One key factor here is investor confidence, along with global uncertainties. Of course, tariffs are part of that, but recently there have also been regional uncertainties that have affected oil demand to some extent.
Overall, we are still hoping for more focus on consumption and demand, and for greater policy attention in those areas.
SFC Markets and Finance: We’ve seen that UBS has upgraded its GDP growth forecast. What are the main considerations behind this revision?
Thomas Fang: We’ve had a lot of internal discussions as well. In fact, this year has been particularly difficult to make forecasts. For example, if you treat tariffs as a variable in a certain position, then the entire economic model—including corporate earnings—can be significantly affected. So our economics team also responded accordingly, when tariffs were escalated, we revised our outlook downward.
Then, when positive signals and outcomes emerged, we adjusted the forecasts upward accordingly. And this is something we are happy to see and support.
The Chinese stock market still has room for further growth
SFC Markets and Finance: With relatively strong economic resilience, the A-share market has performed fairly well, with the Shanghai Composite recently hitting a new high for the year. How do you view the recent performance of the A-share market?
Thomas Fang: I think Chinese assets, especially since the fourth quarter of last year, have drawn considerable attention from global investors. This year, it’s likely that the Hong Kong market or China concept stocks took the lead. As for the A-share market, considering its depth and breadth, it holds strong appeal for investors.
We hope that as fundamentals and policies continue to improve, and under relatively stable external conditions, the A-share market—whether in terms of valuation or investor attention—will continue to gain momentum. From a medium- to long-term perspective, I believe China’s A-share market increasingly reflects the overall momentum of the Chinese economy.
Although we’ve entered a long cycle of moderate growth, in such an environment, investors are likely to pay more attention to high-quality companies, which may also command higher valuations. So I do remain optimistic about the potential for index gains.
SFC Markets and Finance: For global investors, what does the Chinese stock market represent?
Thomas Fang: If we look at different types of investors, medium- to long-term investors may be influenced by certain geopolitical factors. They tend to look for a stable policy environment and steady economic growth over the medium to long term. Then there are also more trading-oriented investors, who focus more on high-frequency information and overall market liquidity. This group of investors actually plays an important role in China’s stock market, both in terms of price discovery and providing liquidity—they contribute in many positive ways.
So different types of investors have varying focal points when it comes to China. But from an asset allocation perspective, although there has been some increase in recent years, global investors are still relatively underweight in Chinese equities. That’s why we believe there’s still considerable upside potential.
Investors' confidence in the Chinese stock market has increased
SFC Markets and Finance: Previously, there was a view that Chinese assets were relatively undervalued. Has the valuation now returned to a normal level?
Thomas Fang: It depends. The Hong Kong market has already undergone a certain degree of correction, and its valuation is now roughly in line with historical averages. But whether we look at the overall MSCI China Index or the A-share market, there is still a high single-digit discount compared to historical valuation levels—and relative to broader markets such as MSCI Global, there’s still a 10% to 15% discount.
So from a valuation perspective, even just returning to historical averages would imply room for upside. I also believe that if China’s economic momentum continues, along with the global trend of diversifying away from dollar-denominated assets, Chinese assets may not only return to their historical average but could even start to trade at a premium.
SFC Markets and Finance: Some say that foreign investors are more confident in Chinese assets than domestic investors. What’s your take on this?
Thomas Fang: It depends on the time period. What we’ve observed is that, especially during this round of the trade war and our response to it, China’s institutional investors have become increasingly united and confident. It’s true that last year or the year before, there was some divergence among investors. But this year, we’ve seen renewed confidence among Chinese institutional investors.
Some overseas investors are still in a wait-and-see mode, mainly due to ongoing geopolitical concerns. But overall, sentiment from both domestic and foreign sides has been relatively positive.
SFC Markets and Finance: Against the backdrop of a weakening U.S. dollar, do you expect more overseas investors to enter the Chinese capital markets?
Thomas Fang: Looking at the bigger picture, over the past decade, investing in U.S. assets and U.S. equities has consistently outperformed the global average. As a result, global investors have tended to be overweight in U.S. or dollar-denominated assets.
Under current circumstances, it’s not so much about not holding these assets, but rather about diversifying holdings. That means major markets and asset classes—whether it’s European equities, Chinese equities, gold, or even some alternative and non-standard assets—have become key choices for investors looking to diversify risk. And China, in fact, is one of the most important options within that diversified mix.
SFC Markets and Finance: Speaking of gold, what’s your price forecast for it?
Thomas Fang: Personally, I have always believed that in an environment of high uncertainty, there is significant upside potential for gold. In this regard, I am indeed optimistic over the medium to long term. Actually, the price movements of gold—as well as other currencies—are closely linked to the U.S. dollar.
When it comes to the dollar, factors such as the growth in U.S. Treasury issuance, changes in the geopolitical landscape, and uncertainties on the policy front all contribute to increased demand for alternative currencies and stores of value—such as gold.
The valuation of the Hong Kong stock market is highly attractive
SFC Markets and Finance: You just mentioned that the Hong Kong market has performed well this year, outperforming many other markets. What do you think are the key drivers behind this rally?
Thomas Fang: I think the main driving force still comes from the Hong Kong stock market, or more specifically, the relative valuation of Chinese assets traded in Hong Kong, which is very attractive. Combined with the global need to diversify away from U.S. dollar assets, the Hong Kong market—with the Hong Kong dollar pegged to the U.S. dollar—brings many positive factors.
At the same time, prior to this current rally, most high-quality Chinese companies that are dual-listed in Hong Kong and Chinese mainland actually traded at a discount in Hong Kong. So we have seen investors heading south, increasingly participate in the Hong Kong market, gaining more pricing power. For the same company, if liquidity is better and it’s more internationalized, yet valuations are relatively lower, it’s definitely a favorable situation.
This is one of the reasons why Hong Kong assets or Hong Kong stocks are so sought after. With improved liquidity and growing investor interest, even some high-quality companies have started to trade at a premium. I believe this is a medium- to long-term trend. Since the Hong Kong market is an international capital market, it is quite possible that it will not only eliminate discounts but even trade at a premium.
SFC Markets and Finance: This year, many Chinese mainland companies have pursued IPOs in Hong Kong, and the Hong Kong IPO market is showing signs of recovery. What’s your view on this trend?
Thomas Fang: From this year’s Summer Davos, we saw that the Hong Kong Stock Exchange was very popular. Many emerging companies and entrepreneurs pay close attention to various financing channels. Hong Kong offers internationalized listing and diverse financing options, aligning well with the needs of the new economy. This has attracted significant investor attention in this regard.
SFC Markets and Finance: Looking at the Hong Kong market, sectors like AI, new consumption, and biopharmaceuticals have done quite well this year. What’s your view on these sectors?
Thomas Fang: I believe these sectors are key hot-spots for global economic growth. With many uncertainties in the U.S., Hong Kong, as an international financial hub for listings, has actually attracted a lot of attention. I think these sectors will continue to draw increasing interest from investors.
Investors are paying attention to the consistency of China's policies
SFC Markets and Finance: What is your outlook for China’s capital markets in the second half of the year?
Thomas Fang: There are still many uncertainties in the second half of the year. Because we can see that although tariffs currently seem to be in a tentative 90-day review period, many capital markets have already adjusted. Regardless of how far tariff negotiations go in the second half, I don’t think there will be an immediate resolution. It will likely involve a medium- to long-term process of negotiation.
Other factors, including the Fed’s interest rate trajectory and China’s various stimulus policies, will guide the development of the economy and stock market in the second half of the year.
SFC Markets and Finance: Besides tariffs, what other potential risks should we be watching closely?
Thomas Fang: Regarding China’s economy, overseas investors remain quite attentive. On one hand, it’s the recovery of the real estate market; on the other hand, it’s the demand side. Whether it’s key data on demand and consumption or related price indices such as CPI and PPI, these are all areas investors pay relatively close attention to. There are also some hotspots with certain uncertainties.
Therefore, we still look forward to a pickup in economic momentum. Additionally, the continuity and supporting nature of policies remain important concerns for investors.
We are hopeful. This year is very likely to be a big year for Chinese assets.
Chief Producer: Zhao Haijian
Supervising Producer: Shi Shi
Editor: He Jia
Reporter: Shi Shi, Li Yinong
Video Editor: Li Qun
New Media Coordination: Ding Qingyun, Zeng Tingfang, Lai Xi, Huang Daxun
Overseas Operations Supervising Producer: Huang Yanshu
Overseas Content Coordinator: Huang Zihao
Overseas Operations Editors: Zhuang Huan, Wu Wanjie, Long Lihua, Chen Quanyi
Produced by: Southern Finance Omnimedia Group
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