China: Companies are going global
Recent strength in China’s export data reinforces a growing trend – Chinese companies are ‘going global’. This shift is not only evident in the macroeconomic data points, but also on a company level. Over the past six to nine months, more Chinese companies have highlighted international expansion during earnings calls, particularly targeting Europe and Southeast Asia. While overseas revenue currently accounts for around 15% of listed companies’ total sales, we expect this share to rise steadily in the coming years. China’s competitive edge lies in producing products or services that are cost competitive.
Though Chinese brands still have little presence in the premium market segment, they are gaining dominance in the mass market, with electric vehicles (EV) as the prime example. Analysis of product pricing across sectors such as solar panels, footwear, white goods, and batteries shows Chinese offerings are around 20%–60% cheaper than global peers. Crucially, Chinese companies often earn higher margins abroad than at home. Overseas markets tend to be less saturated and competitively intense. Anecdotally, some technology companies have disclosed that international margins are roughly double those generated domestically. We believe this international push provides a meaningful uplift to China’s corporate earnings, supporting our expectation of low-to mid-teens percentage growth this year.
We maintain our Overweight stance on the Chinese market for three key reasons:
- we believe China may be able to replicate part of the success US technology companies have achieved, where strong capex growth has arguably led to a strong earnings cycle.
- ‘Going global’ may pose upside to the overall profit margin.
- disciplined cost management and improving shareholder returns are contributing to both profit recovery and continuing valuation rerating.
US Fed: Ready to cut despite differing opinions
Opinions within the FOMC, the US key policymaking body within the Federal Reserve, regarding the appropriate interest rate could hardly be more divided. According to the assessments made in September, seven FOMC members believe that at least one of the interest rate cuts in the past meetings was wrong, two others do not want any further interest rate cuts, and nine members are in favour of another interest rate cut.
This means that the Fed’s key interest rate decision this week will be anything but easy, and it would be a big surprise if there was no dissent from the majority decision. Added to this is inflation, which remains stubbornly close to 3% and shows little sign of moving towards 2%. The decisive factors are likely to be the softening labour market and consumer demand, which is weakening in certain areas due to price increases. Indications that companies are finding it difficult to pass on higher input prices are also likely to help view the current elevated inflation rate as less problematic. If we follow the Beige Book published before each FOMC meeting in our assessment of the US economic situation, a weaker labour market, less scope for wage increases, and lower consumer demand argue in favour of easing the current rather restrictive monetary policy. We expect the current interest rate corridor for the federal funds rate to be lowered by 25bps from 4.00%–3.75% to 3.75%–3.50%.
US policy rates expected to fall in 2026
What does this mean for investors?
If 2025 taught investors one thing, it is that markets trade narratives as much as data – and the two dominant narratives this year have been the Fed and technology. This week brings both back to centre stage. The Fed is expected to deliver a 25bps cut, but in hawkish wrapping. That may sound contradictory, yet it fits the set-up: growth is cooling, inflation is sticky, and the Fed wishes to preserve optionality.
Seasonality suggests that a brief pullback before the Santa rally would be normal. Whether it happens this year will depend on two things: how dovish the Fed looks after the cut, and whether technology/AI delivers enough substance to keep the narrative alive. At the same time, China’s global expansion story adds a third pillar to the investment narrative, offering potential upside for earnings and supporting an Overweight stance on Chinese equities.