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- The rally in Chinese equities, stretching back to early 2024, stalled in Q4 as the region underperformed global equities and wider emerging markets.
- 2026 should see policy pivot from stabilisation toward supporting domestic consumption via trade-in subsidies, targeted fiscal measures and incremental easing that can improve household confidence.
- China’s AI ecosystem is moving from early adoption to scaled deployment, which could provide an important offset to cyclical uncertainty and a potential catalyst for a broader re-rating as earnings visibility improves.
The Liontrust China Fund returned -9.9%* in sterling terms over the quarter, compared with the -3.8% average in the IA China/Greater China sector and the -7.3% return from the MSCI China Index (both comparator benchmarks).
The rally in Chinese equities that began in early 2024 stalled in the final quarter of 2025, with the MSCI China Index falling -7.3% while global equities pushed higher (+3.4%), continuing to be led by emerging markets (+4.8%).
The global backdrop remained supportive with synchronised central bank easing and a clear pivot in the US Federal Reserve’s reaction function toward downside employment risks. The Fed cut rates twice during the quarter and, with continued benign inflation readings, further easing is expected through 2026.
While China’s economic data improved at the margin into year end, with December’s manufacturing PMI moving back above 50 for the first time since March, Q3 GDP of +4.8% reinforced the view that policy support was stabilising activity rather than reaccelerating it. Fiscal policy is expected to be more proactive in 2026 with an emphasis on domestic demand, innovation and the safety net.
The dispersion in sector returns was high, with materials (+15%), energy (+12%) and financials (+9%) generating strong returns while healthcare (-17%), technology (-16%) and real estate (-16%) were much weaker.
The Fund saw strong performance in the materials sector during the quarter, but this was more than offset by weak returns in domestic-facing sectors such as consumer discretionary and healthcare.
Looking into 2026, we see a more constructive setup for Chinese equities as policy increasingly pivots from stabilisation toward supporting domestic consumption via trade-in subsidies, targeted fiscal measures and incremental easing that can improve household confidence. At the same time, China’s AI ecosystem is moving from early adoption to scaled deployment, with leadership spanning applications, cloud/software and select hardware/semis supply chains. This can provide an important offset to cyclical uncertainty and a potential catalyst for a broader re-rating as earnings visibility improves. While the geopolitical risk premium is unlikely to disappear, the tone and trajectory have improved versus prior extremes, reducing tail risk and opening room for selective foreign re-engagement.
Discrete years' performance (%) to previous quarter-end:
| Dec-25 | Dec-24 | Dec-23 | Dec-22 | Dec-21 |
Liontrust China C Acc GBP | 16.3% | 17.7% | -22.2% | -15.5% | -16.7% |
MSCI China | 22.1% | 21.6% | -16.2% | -12.1% | -21.0% |
IA China/Greater China | 21.9% | 13.8% | -20.2% | -16.0% | -10.7% |
Quartile | 4 | 1 | 4 | 2 | 3 |
*Source: FE Analytics, as at 31.12.25, primary share class, total return, net of fees and income reinvested.
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KEY RISKS
Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
- Overseas investments may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of the Fund.
- The Fund, may in certain circumstances, invest in derivatives but it is not intended that their use will materially affect volatility. Derivatives are used to protect against currencies, credit and interest rate moves or for investment purposes. The use of derivatives may create leverage or gearing resulting in potentially greater volatility or fluctuations in the net asset value of the Fund. A relatively small movement in the value of a derivative's underlying investment may have a larger impact, positive or negative, on the value of a fund than if the underlying investment was held instead.
- Credit Counterparty Risk: outside of normal conditions, the Fund may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash.
- Concentration Risk: the Fund may have a concentrated portfolio, i.e. hold a limited number of investments (35 or fewer) or have significant sector or factor exposures. If one of these investments or sectors / factors fall in value this can have a greater impact on the Fund's value than if it held a larger number of investments across a more diversified portfolio.
- Diversification Risk: the Fund is expected to invest in companies predominantly in a single country which maybe subject to greater political, social and economic risks and could result in greater volatility than investments in more broadly diversified funds.
- Emerging Markets Risk: the Fund invests in emerging markets which carries a higher risk than investment in more developed countries. This may result in higher volatility and larger drops in the value of the fund over the short term.
- Liquidity Risk: the Fund may encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings.
- ESG Risk: there may be limitations to the availability, completeness or accuracy of ESG information from third-party providers, or inconsistencies in the consideration of ESG factors across different third party data providers, given the evolving nature of ESG.
- Sanctions: certain countries, including China, have a higher risk of the imposition of financial and economic sanctions on them which may have a significant economic impact on any company operating, or based, in these countries and their ability to trade as normal. Any such sanctions may cause the value of the investments in the fund to fall significantly and may result in liquidity issues which could prevent the fund from meeting redemptions.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
DISCLAIMER
This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.
This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
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