2025 in Review: China Has Become Investible But India Remains a Challenge

Heading into 2025, I said I was watching for a suitable entry point into Indian stocks, and particularly consumer plays, once they stopped correcting. China stocks were off-limits, I wrote at the time, thanks to the friction over trade, and semiconductors in particular.

Here’s that story in case you’re keen to take a look back.

How things have changed. At the time, China was still “uninvestable” for U.S. investors, the tag that JP Morgan slapped on Chinese markets in March 2022.

I revised my call in February, realizing that Indian markets were going to take longer to turn around than I expected. And indeed, the markets in Mumbai have spent the rest of this year struggling for direction.

Here’s the column explaining my revision, where I changed tack to recommend China plays listed in Hong Kong.

China No Longer 'Uninvestable'

I realized that the situation had changed with China stocks. Despite U.S. President Donald Trump’s bluster that he would be slapping Chinese goods with tariffs of 60%, he initially played nice with Beijing — and has always used tariffs as a negotiating ploy to secure a sweetheart deal on trade with China.

That’s still in the works. But we did see a major rotation into Chinese stocks over the course of the first half of this year.

The initial impetus came from the “DeepSeek” moment, when the Hangzhou-based company revealed that it had developed a large language model (LLM) that produced performance akin to the likes of OpenAI, but at a fraction of the cost.

So in February, I recommended both the broad-market Tracker Fund of Hong Kong (HK:2800), which tracks the broad Hong Kong market, as well as the KraneShares Hang Seng Tech Index ETF (KTEC) .

Hong Kong, One of World's Strongest Markets

In fact, Hong Kong stocks had already been rallying, since September 2024. They have continued their strong run for much of the year.

The Hang Seng Index is up 30.6% this year, one of the best showings among major markets. Only the smaller, volatile markets in the likes of Spain, South Africa, Brazil and Mexico have beaten that. In Asia, only South Korea’s Kospi has performed better, up 75.9% thanks to its two largest components: Samsung Electronics (KR:005930), up 126.6% so far in 2025; and SK Hynix (KR:000660), up 273.9%.

China tech stocks have seen global investors rotate into them — and back out. The KTEC is up 21.5% year to date, but peaked in October — at which point the ETF was up 45.9% on the year.

Rotation into, Then Out of, China Tech

Then came some soft numbers for the Chinese economy. Tech stocks have led the decline as global momentum traders moved out of China AI and e-commerce plays. KTEC has since corrected 17.9%, a loss of steam that continues as we head into the new year.

That still leaves KTEC locking in a 21.5% gain for 2025. But the correction has erased most of the gains since I changed my call to move into China tech.

Investors are now skeptical about Chinese growth, and particularly skeptical about the lack of significant stimulus from Beijing to turn the economy around. What’s more, the Chinese leadership is still floundering about looking for ways to stop the death spiral in Chinese property markets, which have seen only two months of price increases since April 2022. Home values dropped 2.4% year on year for November, and the correction appears to once again be intensifying.

The Hang Seng has been supported by tech plays such as China’s largest chipmaker, SMIC (HK:0981), up 118.7% year to date. The likes of Alibaba Group Holding  (BABA)  (HK:9988), up 78.1%, have also done well.

Staid Stocks Outperform

But the strongest performance has come from mining stocks, financials and pharmaceutical plays.

The strong performance of metals and commodities has turbocharged the likes of China Hongqiao (HK:1378), one of the world’s largest aluminum smelters, which saw its shares shoot 170.1% higher on the year, making it the top performer in the Hang Seng.

Likewise, Zijin Mining (HK:2899) is up 141.3% thanks to its mining operations in gold, copper and zinc. It posted the second-strongest showing in the Hong Kong benchmark this year. Jewelry store chain Chow Tai Fook (HK:1929) was rewarded both for its focus on gold sales and on an internal operational overhaul with an 87.4% increase in its shares for 2025.

Other supposedly “staid” plays like insurers China Life CILJF (HK:2628), up 91.6%, and Ping An PNGAY (HK:2318), up 44.2%, have outperformed. Besides the overall ageing and increasing incomes of China’s population, driving demand for life insurance, a regulatory push early in 2025 directed insurers to allocate 30% of premium income to mainland A shares. This produced a positive feedback loop driving the insurer stocks higher as they bought more A shares.

So, in terms of a grade, I give myself a "B-" on the call to move into Hong Kong’s top China plays, and Hong Kong-listed China tech. The first part of the call paid off handsomely, but despite China tech sitting on good gains as the year ends, the momentum has waned.

Indian Equities Yet to Turn Corner

I was correct to identify, back in February, that Indian stocks had not and would not turn the corner.

In terms of the India plays I mentioned, I highlighted the WisdomTree India Earnings Fund  (EPI) , now the third-largest India-focused ETF. I like the “smart” indexing methodology that WisdomTree deploys.

EPI weights net income from the prior 12 months, with the earnings scaled via the multiplication of an “investability weighting” factor based on how freely the shares trade. Any stock’s weighting is based on its earnings factor divided by the sum of all the earnings factors in the index.

That ETF is down 0.6% as we head into year-end. Although they are smaller ETFs, I’m also watching the Columbia India Consumer ETF (INCO), down 3.3% in 2025, as well as the VanEck India Growth Leaders ETF (GLIN), down 8.1%.

However, Indian stocks did bottom at the start of March, at which point the Nifty 50 had dropped 15.5% since September 2024. The Reserve Bank of India has been cutting interest rates throughout 2025, and the government has worked to revamp the Goods and Services Tax (GST), as I explained when the changes went into effect in September.

Tariff uncertainty has hit Indian goods particularly hard. Indian imports into the United States still face an import duty of 50%, some of the highest rates in the world, and we are still waiting to see if there will be any resolution to lower them now that India has agreed to reduce its imports of Russian oil.

So while I swore off political uncertainties relating to China shares heading into 2025, it’s the uncertainty surrounding U.S.-India relations that makes it hard to recommend Indian equities heading into next year. We must wait to see an easing of U.S. tariffs as well as economic growth prompted by domestic rate cuts before we expect any real rally in Indian equities next year.

At the time of publication, McMillan was long KTEC and BABA.