The stage is set for a new investment year as 2024 bids farewell and 2025 beckonsThe past year witnessed a rollercoaster ride for the A-shares, initially facing downtrends but then recovering significantly, especially after the introduction of a series of policy measures on September 24. This led to a notable resurgence in investor sentiment and culminated in the Shanghai Composite Index climbing by an impressive 12.67% over the yearAs we stand on the threshold of 2025, the critical question arises: how will the A-share market unfold in the upcoming period, and which industries are poised to offer lucrative investment opportunities?

Many public and foreign investment institutions express a cautiously optimistic outlook for the A-share market in 2025, despite potential fluctuations at the beginning of the yearThey highlight a range of reasons for this positive sentimentOn one hand, numerous policies aimed at boosting consumer confidence and enhancing corporate investment are set to be implemented gradually

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On the other hand, fresh capital inflows are expected to refresh the marketNotably, sectors like consumer goods, pharmaceuticals, technology, and high-end manufacturing are identified as having promising investment potential.

Significantly, the revival of consumer spending is anticipated to play a pivotal role in maintaining the economic recovery trajectoryIn light of the increasingly complex internal and external scenarios, various domestic and international financial entities maintain that a moderately accommodative monetary policy should lead to better liquidity in 2025. This environment is believed to support a steady economic recovery, with consumer spending acting as a vital anchor.

Andy An, Deputy General Manager at Schroder Investment Management (China), believes that 2025 could see China on the path to continuous moderate recovery, led primarily by advancements in technology and consumer spending

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Additionally, a stabilizing real estate sector is expected to lend further supportDrawing on global experiences, An emphasizes the necessity for China to leverage technology to enhance industrial value and productivity, subsequently leading to improved labor compensation—a pathway that could substantially bolster consumption.

At the Central Economic Work Conference, officials set a tone of moderate monetary easing, placing "significantly boosting consumption and enhancing investment efficacy to comprehensively expand domestic demand" at the top of the agenda for 2025. Such a proactive policy approach is viewed as a strong foundation for annual economic growthFor instance, Motai Mountain, Chairman of Bodao Fund, predicts that China's economic growth rate in 2025 may approximate that of 2024, with the second half showing promising stabilization signals and a recovery from the prevailing deflationary atmosphere, suggesting a favorable rise in both quantity and price.

Moreover, the HSBC Jintrust Fund posits that the expected acceleration in fiscal expenditures, especially following the Central Economic Work Conference's mention of increasing the fiscal deficit ratio for 2025, will enhance the resilience of inventory cycles

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Coupled with debt restructuring measures and improved management of local government bonds, there will likely be a concerted effort from the central to local authorities to utilize fiscal policies robustly to stimulate both consumption and production.

As the year begins, despite initial market corrections, institutions predict a steady inflow of new capital into the A-share marketFactors such as adjustments in asset allocation by households, expansion of ETFs, and the return of foreign investments are all contributing to this trendInstitutions are optimistic that these fresh inflows will create upward momentum in the capital markets.

Guohai Franklin Fund anticipates that the economic recovery will act as a catalyst for the capital market, leading to a favorable environment for A-shares, characterized by recovering fundamentals, heightened investor enthusiasm, and improvements in corporate governance

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They forecast a moderately upward trend amidst potential fluctuations.

Andy An further highlights that the A-share market is starting to exhibit characteristics aimed at rewarding shareholdersIn 2024, for example, the total amount of dividends and buybacks significantly surpassed that of IPOs, signaling a positive shift in the net financing landscapeSuch developments hint at the possibility of forming a virtuous cycleAdditionally, valuation levels in the A-share market remain attractive globally, providing ample room for growth in China's asset allocation within international portfolios.

The start of the new year has seen a steady influx of fresh capital via stock ETFs, helped, in part, by the market adjustmentsAccording to data from Choice, as of January 3, 2025, stock ETF shares increased by 27.494 billion, attracting over 30 billion yuan in total, when calculated against the average transaction price.

In a recent research report, Industrial Securities predicts that the A-share market will continue to welcome new capital inflows in 2025. Presently, the proportion of stocks and funds within household asset allocations remains relatively low

As wealth and industrial capital migrate toward the stock market for reallocation, the prospects for new capital inflows appear promisingSpecifically, the ETF segment, which has been one of the most significant sources of incremental capital in recent years, is projected to continue making substantial contributions in 2025. Assuming a conservative estimate where the increase in ETF shares is slightly lower than the average of the past two years—around 400 billion shares—the corresponding net inflow could exceed 650 billion yuan, given an average net value growth of about 5%.

Industrial Securities also notes that foreign investments in the A-share market remain at historically low levelsWith the A-share market warming up and economic expectations improving, a recovery in foreign investment is anticipatedSimilarly, the China-Europe Fund shares this view, predicting that the inflow into ETFs could surpass 600 billion yuan in 2025, while insurance funds may contribute around 400 billion yuan as well

Despite the current low proportion of foreign investment in A-shares, ongoing improvements in China's economic expectations signal a positive trend for continued capital return.

Investment institutions also perceive significant structural opportunities across various sectors, including consumer goods, pharmaceuticals, technology, and high-end manufacturing, which could herald a more balanced market style in 2025. For instance, HSBC Jintrust identifies three main categories of investment opportunities for the upcoming year: first, upstream resource products, industrial metals, and chemicals are expected to show continued earnings and valuation recovery; second, the advanced midstream manufacturing segments, particularly in renewable energy and general automation, are likely to see improved supply-demand dynamics; third, valuation systems for high dividend and buyback companies, such as those represented by the internet and home appliance sectors, are anticipated to be restructured as economic growth evolves.

"The rapid emergence of new technologies, applications, and breakthroughs signals the dawn of a comprehensive intelligent era that will sweep the globe, significantly impacting everyone’s life, just like the mobile internet era did," expressed Motai Mountain

During this transitional phase, many structural opportunities have already surfaced, including in the domestic new energy vehicle sector and the field of AI applications related to intelligent driving and robotics, which are drawing the attention of investors.

China-Europe Fund shares a similar outlook, asserting that, benefiting from supportive policies and technological advancements, high-tech industries such as AI applications, semiconductors, and renewable energy will spearhead market growthFor 2025, the focus seems to be split between consumer goods and technology, predominantly leaning toward mass consumption sectors such as mining, tourism, dairy products, and clothingIn the tech domain, areas like electric vehicles, lithium batteries, AI applications, and robotics are highlighted, as they align with national long-term development strategies and possess strong growth potential and technological barriers.

Guohai Franklin Fund believes that economic recovery and technological progress will define two significant investment lines in 2025. On one hand, the government's steadfast commitment to economic recovery is likely to yield good returns in sectors like consumer goods, chemicals, pharmaceuticals, and real estate

On the other hand, technological advancement remains a focal area for social and long-term national investments, with numerous leading enterprises ramping up capital expenditures in sub-industries such as AI applications and semiconductors, showcasing promising prospects.

According to Wu Hao, the Research Director of Citic Prudential Fund, "Before a consensus emerges around a fundamental turning point, structural opportunities in the equity market depend on the resonance of liquidity and risk appetite." He suggests that the rotation of these structural opportunities may revolve around several trends: during times of low-risk appetite, investments might gravitate towards high-dividend assets; in phases where risk appetite rises, funds might reallocate to theme-driven assets spurred by events or turnaround opportunitiesOnce a collective expectation for a fundamental turning point solidifies, assets within the cyclical domestic demand sector, currently undervalued, could experience significant recovery.