On December 22, Financial Association reported (Reporter Wu Yuqi) that at the end of the year, Institutions are discussing how to invest next year.

Recently, several foreign institutions such as Invesco, Fidelity, Schroders, and Legg Mason released their investment outlook for 2025, elaborating on investment strategies for next year’s global and China markets from the perspective of the stock market and Fixed Income investment, among others.

Foreign institutions believe that in terms of the stock market, the overall valuation of the A-share market is reasonable now, still one of the most attractive markets globally, and the probability of success in investing in A-shares is high. High-quality dividend stocks remain an important component of investors' portfolios, and they should closely monitor the stock valuation situation for next year.

In the bond market, next year is expected to be a mild economic growth environment, and the decline in inflation will prompt the central banks of Europe and America, as well as the central bank of China, to continue lowering interest rates, while bond valuations remain attractive. The Chinese bond market is expected to see continuous capital inflow next year, with bond prices likely to rise. At lower inflation levels, the diversification advantage of bonds will be further enhanced, effectively hedging the risk of cyclical assets underperforming.

Stocks: Currently, the probability of success in investing in A-shares is high.

The Deputy General Manager and Chief Investment Officer of Legg Mason, Zhu Liang, stated in the 2025 global and China market investment outlook, "We are optimistic about the A-share market. The Legg Mason China A-share market sentiment index shows that the A-share market sentiment is quickly recovering. Earlier this year and mid-year, the index fell to a low, and the sentiment index fell below 10 at the beginning of 2024, but it is now quickly rebounding."

Regarding valuation, Zhu Liang believes that the overall valuation of the A-share market is reasonable now, still one of the most attractive markets globally. With more stimulus measures introduced by the government, there is tremendous imaginative space for the A-share market. Current valuation levels indicate a high probability of success in investing in A-shares. The overall PB of A-shares is about 1.4 times, providing a good environment for beta returns. Historical experience shows that since 2008, when the PB of A-shares fell to 1.3 to 1.5 times, the average cumulative return over the next two years was 58%.

In terms of capital flow, after September 24, many foreign hedge funds entered the China A-share market, but some began to exit on October 8. During this period, the allocation of long-term patient capital in A-shares increased from 5% to 6.1%, driven by market cap growth, without proactive increases. Foreign ownership in Chinese stocks is too low, and with government stimulus for the economy, the rebound force is expected.

Regarding the problems facing A-shares, Zhu Liang stated that it mainly faces internal factors rather than external issues. Most listed companies in the A-share market are domestic demand-oriented, with revenue primarily coming from domestic demand, and the contribution from the USA is very limited. The boost in the A-share market mainly relies on domestic demand, particularly the growth and development of the Chinese consumer market, which still has a huge growth space.

Recently, the A-share market has rebounded, with volatile stocks performing prominently, but the fundamentals and valuation indicators lag behind the long-term performance of the past year. This rebound is a 'junk rally', belonging to market sentiment release and having little relationship with fundamentals; valuation factors are being overlooked and are unsustainable. The market will ultimately focus on the fundamentals. Similar phenomena have occurred in previous rebounds and global markets, where high-volatility stocks performed well in the early stages, but 3 to 6 months later, theme stocks without fundamental support will see their prices return, and value-style investments will gradually show long-term prospects.

Zhu Liang pointed out that if the management governance structure reform of China's market cap becomes long-term and institutionalized, it will have a positive effect on the market. Especially in a low interest rate environment, if companies continuously increase dividend ratios while maintaining stable performance, it will attract more investors back to the capital market and enhance the investability of China's capital market.

Matthew Quaife, Global Head of Multi-Asset Investment Management at Fidelity International, stated that China is exploring a robust and more sustainable growth model, focusing more on domestic consumption and high-end manufacturing. China's manufacturing industry, especially emerging industries, is gradually upgrading, with rising capital expenditures and external demand supporting overall growth, however, consumption has not yet seen a significant rebound. The policy shift signal released at the end of the 2024 Central Political Bureau meeting indicates the government's determination to take action to stimulate domestic demand, with measures covering stabilizing the real estate sector, alleviating local government debt, boosting the stock market, and enhancing consumer confidence.

Fidelity International's fund manager Jochen Breuer stated, "High-quality dividend stocks remain an important component of the investment portfolio for investors."

Investors should closely monitor next year's stock valuation situation. The strong rise in stock prices in 2024 is partly due to profit growth, but more so from valuation expansion. The market that already reflects optimistic growth expectations is easily affected by unexpected negative events. Although investing in global markets cannot avoid unexpected incidents, investors can control the impact of unexpected events by focusing on valuations and avoiding stocks with high downside valuation risk. At the same time, investors should also pay attention to those companies whose growth is driven by internal factors rather than external environments.

In the 2025 outlook, Kristina Hooper, Chief Global Market Strategist at Invesco, also mentioned Chinese stocks, stating that "the current valuation of Chinese stocks is quite attractive, although low valuations do not guarantee the stock market will rise. However, with strong economic stimulus policies and support from low valuations, the market often performs more positively."

Schroders pointed out that there has been significant progress in China under more coordinated and firm policy support in September 2024. However, monetary policy remains tight, and subsequent fiscal policy actions are smaller than market expectations. It is expected that the trade cycle will slow down by 2025, while China is currently facing tariff risks from the Trump administration. However, the real estate market in the largest 'first-tier' cities shows signs of gradual stabilization.

"We believe that the current Chinese economy and market have strong policy support. Announcements of policies can drive investment in the market, and deploying in China remains relatively favorable," said Schroders.

Fixed Income: Next year will be a moderate economic growth environment, bullish for Bonds.

Huang Qingfeng, a senior investment strategist at Invesco Group, believes that China's bond market is worth close attention from investors in the future. Since the beginning of this year, the People's Bank of China has continuously introduced multiple economic stimulus policies and has cut interest rates several times, so the possibility of further reserve requirement ratio cuts or interest rate cuts remains. The PBOC has room to further cut interest rates to continue stimulating the economy and maintain stability.

Recently released PMI Index and industrial output data have both shown significant signs of stability, suggesting that under the backdrop of economic stimulus policies and steady economic growth next year, the fundamentals of Chinese government bonds and credit bonds will receive significant support. In addition to government bonds benefiting from price increases due to interest rate cuts, another investment opportunity lies in China's high-rated credit bonds, which currently offer yields higher than domestic government debt.

From the perspective of funds returning to the bond market and the ongoing environment of continuous interest rate cuts by the Chinese government, there is still room for the spread of Chinese corporate bonds to narrow further. Therefore, we tend to select medium- to short-term bonds in government bonds, while credit bonds provide a better yield investment opportunity.

Overall, next year is expected to be a moderate economic growth environment, with declining inflation prompting central banks in Europe and America and the People's Bank of China to continue cutting interest rates, while bond valuations remain attractive. Therefore, Invesco believes that funds will continue to flow back to the bond market, and the probability of bond prices rising is very high.

In terms of investment strategy, Huang Qingfeng stated that the recommendations from last year will continue, and this year should focus on the following three points:

First, to achieve balance, it is recommended to evenly allocate between government bonds and CSI Enterprise bond Index, so that regardless of market fluctuations, risks can be effectively diversified while capturing returns from each sector of Bonds.

Secondly, it is important to lock in high-quality bonds. As previously mentioned, BB-rated and B-rated bonds can yield good returns, with a relatively low overall default rate.

Finally, prioritizing returns is crucial. For bond investors, mastering all coupon-bearing assets will be a good choice regardless of whether the market is volatile or on the rise.

Kristina Hooper believes that despite the narrowing of spreads, bonds remain attractive, especially those with longer holding periods. Strong fundamentals support various fixed income assets and help explain the unusually tight credit spreads in investment-grade and high yield credit. In a context of steady and continuously improving growth, investors will prefer to take on some credit risk, such as choosing high-quality high yield bonds. The diversification attributes of bank loans are also appealing, as their duration is close to zero and they are expected to be relatively insulated from interest rate fluctuations. Local currency bonds in Emerging Markets are also expected to perform strongly.

Schroders states that with the decline in policy interest rates, the negative spreads that have hindered bond holding over the past few years (i.e., when bond yields are lower than the financing costs for holding those bonds) have disappeared, existing only in the shortest-term bonds.

At the same time, under lower inflation levels, the diversification advantage of bonds will further strengthen, effectively hedging against the risk of poor performance in cyclical assets. Compared to alternative assets, bonds also appear relatively cheap, offering better value for money, and their yields have now surpassed the expected earnings yield of the S&P 500 Index.

In this context, bonds can serve a dual purpose in a portfolio: providing a source of income while enhancing the resilience of a diversified investment portfolio.

Fidelity International fund manager James Durance states: "Discrepancies in central bank policies and regional credit spreads narrowing have created opportunities for investors adopting a Global Fixed Income strategy, allowing them to flexibly invest in corporate bonds and government bonds denominated in various currencies, as well as investment-grade bonds, high yield bonds, and Emerging Market bonds of varying maturities."

From an interest rate perspective, the high uncertainty of USA Treasury premium may persist, therefore entering 2025, investors will need to allocate bonds of different durations globally. Since the yield of Fixed Income investments remains at historical highs, focusing on corporate bonds with high-quality yields is expected to create attractive total returns. In terms of High Yield Bonds, it is advisable to pay attention to higher quality, more certain corporates, rather than chasing yield in a higher risk structure. Overall, investors should focus on risk management, pay attention to companies with good fundamental trends, and avoid those with high leverage.