European Equity Strategy: Will slowing China growth unlock stimulus?

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European Equity Strategy: Will slowing China growth unlock stimulus?

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European Equity Strategy

Will slowing China growth unlock stimulus?

China’s growth has slowed sharply, raising the scope for increased policy support: AI and Iran have 24 July 2026

dominated market dynamics so far this year, but investors’ attention could soon shift to China, where growth

Equity Strategyhas slowed sharply, led by weakness in domestic demand. Our economists argue that this raises the likelihood

Europe

of policy easing, with policymakers potentially signalling support as soon as the late-July Politburo meeting.

This would likely come as a surprise to the market, as consensus expectations for a policy step-up remain

subdued.

Who would benefit from Chinese policy easing? Among the China-focused cyclicals, we lift luxury goods

from marketweight to overweight. The sector is down 50% relative to the market since its 2023 peak but has

Sebastian Raedler >>

recently started to rebound from a nine-year low. We think that rebound has further to go, given the upside Investment Strategist

implied by its key macro drivers (global and China growth, US real rates, EUR/CNY), especially if investor MLI (UK)

+44 20 7996 1749

confidence is boosted by news on China policy support. We also stay overweight chemicals, another long- sebastian.raedler@bofa.com

suffering China-exposed sector that has recently started to recover, although, unlike for luxury goods, increased Thomas Pearce, CFA >>

Chinese competition is a concern. We are marketweight autos and recently lifted mining from underweight to Investment Strategist

MLI (UK)

marketweight, following 20% underperformance on the back of the recent AI momentum unwind. We stay +44 20 7996 2081