Where Chinese equities go, emerging-market stocks will follow

Fidelity Investments

Research

9 Pages

Fidelity argues that China remains the swing factor for emerging markets given its index weight and valuation reset. Chinese equities have fallen more than 50 percent from 2021 peaks and now trade near trough multiples, with policy support and sentiment improvement setting the stage for a cyclical rerating.

Key Takeaways

Valuations support upside: Chinese equities are expected to deliver the highest 10‑year return (~11.3% annually), driven by strong fundamentals and deep discounts
Risks remain elevated: Structural issues like property sector weakness, youth unemployment, and deflation risk could delay the recovery, warranting cautious exposure
Volatility is the price of opportunity: Even under stress scenarios, Chinese stocks present compelling returns versus developed markets, so exposure should reflect both conviction and risk tolerance
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