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China’s showing weak growth, but strong market returns. Here’s why
October 10, 2025
What do weak growth and strong market returns in China mean for investors? Here’s an explanation from Pendal’s Global Emerging Markets Opportunities team
- Tech and dollar diversification drive China interest
- Weak economic indicators contrast with strong equity returns
- Find out about Pendal Global Emerging Markets Opportunities fund
THE relationship between economic growth and equity market performance is not a simple one.
Sometimes strong growth goes with weak market returns, and sometimes vice versa.
China is an interesting case in point.
The economy is not in crisis, but growth is weak. For example, rail-freight volume growth was negative in the year to August and property sales were down 7%.
Despite this, returns have been strong with MSCI China index up 43.1% (in USD).
A number of factors are driving this, including the ongoing success of China’s heavyweight technology companies in attracting investors.
China has also emerged as the main beneficiary of global investors and governments seeking to diversify their exposure to the US dollar.
On the trade side, geopolitical friction with the US and expanded use of financial sanctions have encouraged many economies to expand the use of the renminbi.
The share of China’s trade invoiced in its own currency has more than doubled since 2019. More than half of cross-border receipts are now settled in renminbi, up from less than 1% in 2010.
Belt and Road Initiative partners in Asia are increasingly using renminbi for trade and investment financing.
At the same time, swap lines extended by the People’s Bank of China to more than 30 central banks around the world provide a liquidity safety net that rivals the IMF in scale.
Borrowing trends show a similar evolution.
Since the West started sanctioning Russia in 2022, Chinese banks have shifted most of their overseas lending from dollars into renminbi, tripling the outstanding stock of renminbi-denominated loans.
Sovereign issuance has followed.
Hungary, Russia and others have issued RMB-denominated onshore “panda” bonds, while “dim sum” RMB bond issuance in Hong Kong has surpassed its previous peaks.
This is creating a deeper pool of offshore renminbi assets for investors, who are attracted by record-low funding costs and a desire to diversify away from dollar assets.
Hong Kong sits at the centre of this transition.
Find out about
Pendal Global Emerging Markets Opportunities Fund
Some three-quarters of offshore renminbi trading is conducted there.
The Hong Kong stock exchange has surged back to the top of global equity IPO rankings, with more than 200 companies in the listing pipeline.
Capital flows from the mainland through the Stock Connect scheme are driving record trading volumes, with the total value traded through the Hong Kong exchange in the third quarter of 2025 up 150% on a year earlier.
The result is that diversification away from the US dollar is not creating global financial fragmentation – rather it is channelling more activity into China’s orbit, anchored by the renminbi and mediated through Hong Kong.
In the Pendal Global Emerging Markets Opportunities Fund portfolio we remain defensively positioned regarding China’s economy, but hold exposure to Chinese technology companies and to the Hong Kong capital markets industry.
About Pendal Global Emerging Markets Opportunities Fund
James Syme, Paul Wimborne and Ada Chan are co-managers of Pendal’s Global Emerging Markets Opportunities Fund.
The fund aims to add value through a combination of country allocation and individual stock selection.
The country allocation process is based on analysis of a country’s economic growth, monetary policy, market liquidity, currency, governance/politics and equity market valuation.
The stock selection process focuses on buying quality growth stocks at attractive valuations.
Find out more about Pendal Global Emerging Markets Opportunities Fund here
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.
This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current at October 10, 2025. PFSL is the responsible entity and issuer of units in the Pendal Global Emerging Markets Opportunities Fund (Fund) ARSN: 159 605 811. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com.
The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested.
This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation.
The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information.
Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance.
Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. While we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections.
For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com
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