By Eric Wong

About the author: Eric Wong is the founder and chief investment officer at Stillpoint Investments.

For global investors, the weeks since President Donald Trump's tariff "Liberation Day" on April 2 and the subsequent market turmoil have been a jolt. For China investors, it has just been déjà vu.

For years, investors dismissed China as uninvestible, citing abrupt policy shifts, weak domestic demand, and geopolitical risk. Yet under Trump 2.0, the U.S. seems to be following a similar script. This month, the S&P 500 has seen a spike in volatility matched only once in the past decade. By contrast, China's Hang Seng Index has experienced volatility of similar magnitude at least five times over the same period. With MSCI China trading at a 40+% discount to the S&P, China may no longer be the risk -- it may be the opportunity.

The U.S. and Chinese markets are starting to look alike for one simple reason: a shared tendency toward redistributive efforts that stoke market uncertainty. In China, investors have long contended with drastic policy pronouncements that strike at the heart of market confidence. For example, the Chinese government framed its regulatory campaigns against internet platforms and after-school tutoring as efforts to correct structural imbalances and income inequality. But in doing so, they disrupted key engines of growth and eroded optimism across markets and among new graduates. Trump's "reciprocal" tariffs, though different in form, share the same intent and implications. And his push to favor Main Street over Wall Street echoes the contours of President Xi Jinping's " common prosperity" campaign -- well-intentioned in rhetoric, but with similarly chilling effects on investor and entrepreneurial sentiment.

Even policy zigzags in the U.S. are starting to feel a lot like China's. Trump's abrupt 90-day pause on Liberation Day tariffs -- just six days after unveiling them -- was a dramatic reversal, one he touted as fueling the most bullish day for the S&P since 2008. For investors in China, however, such whiplash is familiar. Think of Xi's sudden abandonment of its zero-Covid policy in late 2022 and sharp pro-growth pivot in September. These kinds of unpredictable policy lurches and top-down shifts are nothing new to China investors. U.S. investors are only now getting a taste.

The resulting erosion of confidence in the U.S., too, mirrors patterns seen in China. Following China's severe Covid-19 lockdowns, consumer sentiment collapsed to multidecade lows. Small business confidence has since been on an unshakable downtrend, owing to dim growth prospects in a challenging policy environment that has complicated capital allocation.

Just weeks after Liberation Day, the parallels in the U.S. are striking: consumer confidence in mid-April reached its second lowest level since 1952, and business demand has dropped sharply, hitting thresholds last seen during the 2008-09 financial crisis. In China's case, consumer sentiment has only now begun to show signs of recovery -- raising questions about how enduring the damage in the U.S. might be.

For the U.S., the storm clouds are just gathering. In China, it was a multiyear deluge. Home values fell. Youth unemployment hit record highs, as has uncertainty around future incomes. Entrepreneurs adapted quickly by innovating or implementing efficiencies. Under pressure, resilience wasn't optional -- it was a necessary mode of operation. China is now showing signs of stabilization, especially on the back of the government's pivot away from austerity measures and toward stimulus policies in late 2024. Growth in retail sales, though still tepid, has seen near-term improvements. And at the index-level, earnings in the fourth quarter of 2024 beat expectations for the first time in 13 quarters.

The economic impact of Trump's tariffs are just beginning to trickle through to China's macroeconomic data. A report this week showed the country's factory activity is contracting, and experts trimmed economic growth projections. But the Chinese government has repeatedly emphasized its intention to drive stability through incremental stimulus. In the face of Trump's tariffs, a renewed sense of pride triggered by domestic successes like DeepSeek has heightened nationalistic zeal -- a boon to Chinese consumer brands just as they need it the most.

Nowhere is this optimism more evident than in Hong Kong's capital markets. In mid-2024, Hong Kong recorded the lowest trading volume in four years, reflecting deep investor apathy. This year, the tide has started to turn: IPO activity has resumed, clocking the highest capital raised year to date in four years. Of note is Mixue Group, a beverage chain operator whose IPO retail order book was more than 5,000 times subscribed. Driving this fervor has been the steady and forceful participation of Southbound flows from the mainland, which now account for over 25% of trading volume in Hong Kong, up from just 15% a year ago.

It appears animal spirits are stirring once again in Hong Kong, especially among domestic retail investors.

Against this backdrop, Chinese equities look strikingly cheap. MSCI China trades at just 9.6x 2026 earnings, a 45% discount to the S&P. On the basis of price/earnings-to-growth ratios, Chinese equities are also cheaper, even after haircutting MSCI China's growth while giving the S&P full credit. The disparity widens further on free cash flow metrics, with MSCI China offering a trailing yield more than 2.5x that of the S&P. If U.S. risk premiums are beginning to mirror those in China, the valuation gap becomes increasingly difficult to justify.

Unlike the U.S., China has already endured years of macro and policy headwinds, suggesting the damage is amply priced in. Over that time, global investors have shunned China, overlooking the structural shifts and resilience taking root in the world's second-largest capital market. For those now thinking about how to diversify away from the U.S., the mix of low expectations, improving flows, and deep value in China is getting harder to ignore.

Less than two years ago, former Commerce Secretary Gina Raimondo set off controversy when she claimed U.S. businesses felt China had become "uninvestible." Trump's second term may change that consensus. In fact, he may have just made China investible again.

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April 30, 2025 14:33 ET (18:33 GMT)

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