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By the end of 2024, U.S. and Chinese equities—tracked by the MSCI USA and MSCI China indices—ended up with fairly similar returns. But how they got there couldn’t have been more different. So far in 2025, their paths have diverged even further: the MSCI China Index is up nearly 20%, while the MSCI USA Index has slipped into negative territory.

China's Economic Repositioning

While the Trump administration’s trade policies are having a major impact on global equity markets, responses from national and regional governments are also shaping the landscape.

In China’s case, after a strong fourth quarter in 2024—when GDP grew 5.4% year-over-year—the government laid out its 2025 economic goals. These include a more proactive fiscal policy, a supportive monetary stance, and a focus on boosting domestic consumption and driving high-quality growth through innovation.

The emphasis on domestic consumption stands out, especially given the current tariff environment, which is slowing Chinese exports—a sector that accounted for nearly a third of the country’s growth last year.

To encourage consumer spending, the Chinese government plans to support “reasonable growth” in wages, explore a system for adjusting the minimum wage, consider childcare subsidies, and ramp up investment in areas that directly support consumption.

Is it time to invest in Chinese equities again?

Leading Chinese equities have seen strong gains this year, driven in part by recent economic policy announcements from the Chinese government. As the chart below shows, companies like Xiaomi, Alibaba, and BYD have outpaced many of their peers in 2025.

Still, challenges remain. China continues to grapple with real estate sector debt, which is weighing on household confidence and the broader economy. On top of that, any escalation in U.S.-China trade tensions—especially under Trump’s renewed “America First” stance—could pose serious risks to Chinese businesses.

As the world's second-largest economy, China plays a vital role in the global economy.  With Trump's 'America First' policies causing economic reverberations across the globe, it could open the door for renewed economic cooperation among countries, creating avenues for growth.

Investing in China via ETFs

 For Canadian investors seeking exposure to Chinese equities, the iShares China Index ETF (Ticker: XCH) and the BMO MSCI China ESG Leaders Equity Index ETF (Ticker: ZCH) provide exposure to the region.

XCH tracks the FTSE China 50 Index, which comprises the 50 largest and most liquid Chinese stocks, while ZCH tracks the MSCI China ESG Leaders Index, which reflects the performance of securities that have been assigned higher ESG ratings by MSCI relative to their peers and targets 50% of the market capitalization within each sector.

The Index excludes securities of companies that earn significant revenues from tobacco, alcohol, gambling, conventional weapons and civilian firearms, any controversial weapons, significant generation of nuclear power as well as companies involved in severe business controversies.

As of February 28th, 2025, XCH's year-to-date return has been 15.90%. XCH's primary holding is the iShares China Large-Cap ETF (Ticker: FXI), whose top holdings include Tencent, Alibaba, and Meituan.

For ZCH, the year-to-date performance as of February 28th, 2025 is 19.44%, whose top holdings include Tencent, Alibaba, and China Construction Bank Corp.

 Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.