As the Chinese zodiac turns to the Year of the Snake, investors are left wondering what the new year holds for its equity markets.

Traditionally associated with wisdom, strategy, and adaptability, the snake offers a fitting metaphor for navigating the twists and turns of China’s economic landscape and geopolitical environment.

Trade war with Trump

China’s growth paradigm since late 2020 has been a two-speed model – a very strong export machine with poor domestic consumer demand. Its trade surplus hit a record high of about $1trn in 2024, while its 10-year government bond yield hit a record low of 1.6% with its economy trapped in a deflationary cycle with weak consumer confidence.

President Trump’s re-election and the prospect of a new trade war will threaten the sustainability of export growth, as exports to the US account for about 3% of China’s GDP.

How the forthcoming trade war is fought matters a great deal. A modest and gradual increase in tariffs is unlikely to derail export growth, but a strong and swift tariff increase scenario would put considerable pressure on economic growth in the foreseeable future.

The range of outcomes is very wide, and the path to the end game is highly uncertain. Investors need to stay agile and prepared for volatility and opportunities.

Bolder fiscal stimulus

The narrative changed significantly after the critical policy pivot in the last week of September 2024. While this was seen as an inflection point in stimulus policy, the follow-through so far has fallen short of investors’ expectations.

A crucial reason for the lack of a big bazooka so far is that policymakers don’t yet know which one to bring out. The size of the bazooka is dependent on the severity of the trade war.

As Trump prepares to fire his initial shots after being formally sworn in, they will assess and adjust the size of the stimulus accordingly, and the National People’s Congress in March will offer a timely occasion for them to do so.

Much bolder fiscal stimulus focusing on boosting domestic consumption would improve consumer confidence and rekindle the animal spirits.

Capital market reform

One policy directive that investors have not paid enough attention to are Beijing’s plans to “invigorate the capital market” by “using the capital market as a lever (to boost economic recovery)”. A better and more efficient capital market serves to achieve two important goals. 

Chinese households firstly need a new avenue to store, invest, and grow wealth. This role was previously fulfilled by the property market.

House ownership is high, and 60% of household assets sit in property. The best days of the property cycle are behind us, and the negative wealth effect of the property downturn is hurting consumers’ willingness to spend.

A deep, efficient and transparent domestic capital market with a strong pool of high-quality public companies that can deliver good long-term shareholder return is a very convincing and much needed alternative.

Another important problem that needs fixing is the state-owned banks’ ineffective and wasteful lending driven model, which is no longer fit for purpose in a technology and innovation driven stage of growth.

The bank lending model works fine when growth is driven by funding manufacturers with tangible plants and equipment. However, when the new sources of growth are mostly in innovative industries with more intellectual property and intangible assets, a deep capital market with sophisticated risk takers from venture capital, private credit and equity, and patient long-term institutional investors plays a much more important role in allocating capital efficiently.

China’s efforts to reform its capital market would improve corporate governance, raise the quality of listed companies, and in turn, boost shareholder return.

Stimulus policy is more important than trade war

Trump’s recent re-election brings the trade war narrative back to the forefront of many investors’ minds. The Year of the Snake is going to be a tug-of-war between domestic policy stimulus and the trade war, which will bring plenty of good investment opportunities that may come with some manageable volatility.

How policymakers will apply  stimulus policy tools to boost consumer confidence to fight deflationary pressures, and respond to the trade war and its impact on export growth is the most critical driver of equity market returns in China.

The policy pivot at the end of September 2024 was a critical turning point. It signalled that at long last, the policymakers acknowledged the long-term damage of the deflationary pressure and poor consumer confidence and signalled their willingness to fight.

In essence, this put a floor on economic growth and asset prices. What remains to be seen is whether the policy goal is to merely arrest the downturn or to get the economic engine humming again.

A trade war would undoubtedly put pressure on external demand growth, but it could also serve as a much-needed final kick that policymakers need for unorthodox and bolder reflationary stimulus policies, which is a more important driver for asset prices in China.

In the event, there was no explosion. Instead, there was a clean-up effort that lasted years and the undamaged reactor did not reopen until 1985. However, the public’s confidence in the safety of nuclear power had eroded and Three Mile Island was eventually closed in 2019.

Grow your own

Despite the energy source remaining shrouded in speculation, in September 2024, Constellation Energy announced that Three Mile Island would be reopening, with Microsoft as the sole purchaser of its energy on a 20-year contract. The motivation? Powering Microsoft’s data centres for the growing presence of AI.

Microsoft is far from the only company to anticipate the burgeoning need for energy in coming years and to take matters into its own hands. However, as investments in AI have shot up in recent years, investments in energy, and specifically renewable energy, have tanked.

See also: Aegon: Data centres are the new dividend drivers

By 2030, the US Electric Power Institute estimates the energy demands of data centres could account for more than 9% of all US energy consumption. Currently, this sits at 4%. Jim Wright, fund manager of the Premier Miton Global Listed Infrastructure fund, says the phenomenon could lead to “a land grab” for energy supply and generation, exemplified by the Microsoft deal.

“The requirement for additional electricity will stretch the system capacity, particularly at seasonal and daily demand peaks. The inevitable solution is more investment in generation capacity, which will include renewables, batteries, gas-fired generation and nuclear power,” Wright explains.

“The costs, lead times and technological and regulatory challenges make new nuclear, either in the form of Small Modular Reactors or large power plants, a longer-term solution. There is considerable momentum, as shown by Meta’s recent request for developers to provide between one and four gigawatts of new nuclear capacity in the US to power its AI data centres.

“The growth in electricity generation capacity will require significant capital expenditure and changes the long-held perception of electricity utilities, which may now be classed as ‘growth stocks’ for the next decade.”

Read the rest of this article in the January edition of Portfolio Adviser Magazine

65.1% of the total votes cast were against the eight requisitioned resolutions, which would have seen the trust’s board replaced by Saba’s nominees if passed.

A majority of the trust’s total shares with voting rights participated in the vote.

PA Events: PA Live: A World Of Higher Inflation 2025

In a stock exchange announcement, the board said only a further 59,221 non-Saba shares, representing just 0.15% of the votes cast, voted in favour of the resolution.

Saba’s shares represented 34.75% of the total votes cast.

Andrew Joy, chair of Herald Investment Trust, said the result provides a “clear, complete and incontrovertible rebuttal” of Saba’s proposals.

“The votes against Saba’s proposals were supported by independent proxy advisers including Glass Lewis and ISS. It is perfectly clear that the reason Saba’s proposals were rejected is that they were intended to lead to an outcome, namely Saba managing Herald, which the existing shareholders were simply not interested in.

“The reason shareholders invested, and continue to invest, in Herald is for long-term capital appreciation through investing in smaller technology companies, and they do not wish to be deprived of the opportunity to enjoy more of the same. They did not invest in Herald to become part of a short-term trading strategy.”

See also: BlackRock enters pact with Saba to ‘not seek to control or influence the board’

Following the vote, Saba’s Boaz Weinstein said he had been encouraged by the “thoughtful engagement” from fellow Herald shareholders in recent weeks.

“Over a brief period, our campaign has already enhanced value for shareholders and incited positive change at HRI – and elsewhere in the U.K. market – as evidenced by discounts to net asset value narrowing and numerous trusts announcing shareholder-friendly actions.”

He added that Saba would continue to pursue changes it believes are necessary to improve the trust.

“Saba remains committed to putting shareholders’ interests first, delivering returns for UK trust investors and ultimately rehabilitating this broken sector. We urge shareholders of the six other trusts at which we have requisitioned General Meetings to support Saba’s resolutions in order to set these trusts on the path to meaningful value creation.”

‘Victory for shareholder democracy

Reacting to the outcome, Richard Stone, chief executive of the Association of Investment Companies, said: “It’s very encouraging to see Herald shareholders turn out to vote in such numbers.

“This is a victory for shareholder democracy. There are six other trusts with votes just around the corner. It’s vital that all shareholders vote on the future of their investment trust. Shareholders need to act now.”

Voting on similar proposals for the six other trusts requisitioned by Saba will take place over the coming weeks.

Baillie Gifford US Growth and Keystone Positive Change will vote on 3 February, a day before CQS Natural Resources Growth & Income and Henderson Opportunities Trust.

The European Smaller Companies Trust meeting is scheduled for 5 February, before Edinburgh Worldwide shareholders vote on 14 February.

The agreement, announced yesterday by BPCE — Natixis IM’s parent company — and Generali, will see the launch of an asset manager with €1.9trn (£1.6trn) assets under management.

The parent companies will own 50% each of the combined business, with balanced governance and control rights.

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BPCE CEO Nicolas Namias will chair the board of the new entity, with Generali CEO Philippe Donnet as vice chair.

Meanwhile, current Generali Investments Holding CIO Woody Bradford would serve as CEO, with Natixis IM CEO Philippe Setbon as deputy CEO.

Subject to regulatory approval, the merger is expected to complete by early 2026.

Both parties cited critical scale, an enhanced offering in private assets to meet growing demand, and strengthened global distribution capabilities as some of the factors behind the deal.

See also: BlackRock enters pact with Saba to ‘not seek to control or influence the board’

Thomson has been on the board since the company launched in 2018, and served as chair of the audit committee. This position will be taken on by Margaret Stephens, and the trust said the search for a new non-executive director is “at an advanced stage”.

See also: Japanese small caps: Too many cooks

“The board would like to express its gratitude to Katya [Thomson] for her invaluable contributions to the company since its launch in October 2018. Her guidance as chair of the Audit Committee has been greatly appreciated.  We extend our best wishes to her for the future,” the board stated in a stock exchange announcement.

See also: PA Live Slicing The Regional Pie

AVI Japan Opportunity is currently trading at a 3.4% discount to NAV, and has a share price total return of 31.4% over the last year, compared to a sector average 9.1%, according to the AIC. Over the past three years, it has returned 41% while the sector has lost 8%.

The First Trust Vest U.S. Equity Buffer UCITS ETF – January will aim to match the price return of the S&P 500 up to a predetermined upside cap, while providing a 10% downside cushion through a built-in buffer mechanism.

The cap and buffer will be reset after a year in January 2026 to match market conditions. The ETF charges a 0.85% total expense ratio.

 PA Live: A World Of Higher Inflation 2025

Rupert Haddon, managing director at First Trust Global Portfolios, said: “FJAN represents the first ETF in our quarterly series of scheduled UCITS ETFs for our S&P 500 Target Outcome 10% buffer suite.

“In today’s volatile market environment, we believe FJAN offers a compelling solution for investors seeking exposure to leading S&P 500 companies while managing downside risk.”

The strategy will act as a complement to more traditional portfolios, and begins with near $100m. It will invest across the liquid multi-asset universe, taking long and short positions.

See also: BlackRock enters pact with Saba to ‘not seek to control or influence the board’

LOIM’s DOM Global Macro team is made up of five people and led by Valentin Petrescou and Didier Anthamatten. The team collectively transferred from Credit Suisse to LOIM, where they managed two multi-asset investment strategies.

Jean-Pascal Porcherot, co-head of LOIM, said: “At LOIM, we have deep partnerships with our clients and help them to precisely manage the risks and opportunities that arise across market cycles.

“With the launch of DOM Global Macro, clients benefit from the team’s extensive expertise managing multi-asset macro strategies that target absolute returns. The launch is an important milestone in strengthening LOIM’s alternatives business, as we expand our range of differentiated strategies that seek to create sustainable value for clients.”

PA Events: PA Live A World Of Higher Inflation 2025

Instead, the portfolios will operate on a combination of equity, cash and bond allocations. Particularly, this year will see a lift in non-GBP equities and an uptick in GBP cash & bonds.

Ryan Hughes (pictured), managing director at AJ Bell Investments, told Portfolio Adviser: “We’ve had a very good look at this alternatives space and the types of assets that we consider to be investable, and ultimately, we concluded they are not adding to the portfolios, and therefore they shouldn’t be there.

“We understand there are lots of people out there that use different flavours of alternatives, but we have a very particular approach to that has to be available actively and passively, which rules out a lot. The simple, transparent, low cost, that rules out a lot more. We’ve also seen a lot of this stuff go very wrong over the years. It’s great while it works, and then it doesn’t. (It’s) in your portfolio to provide you the protection when your equities aren’t doing so well, and the alternative should step in, but in reality, it just doesn’t work like that.”

PA Events: PA Live A World Of Higher Inflation 2025

Where, then, will the team find their diversifiers in 2025? In this case, the simple answer is the right one to the AJ Bell team.

“It’s nice and straightforward. It’s cash. You can get a return of 5% today from money market funds and cash. Do you actually need to look to alternatives to provide that low risk, uncorrelated return when you have got a great standing start from a very low risk asset?” Hughes said.

“People generally have been reaching into the alternative space, either when there’s been very low returns on cash available, or when they got concerned about fixed interest. At the moment, only one of those is probably true, which is the risk around fixed interest and where we go from here with inflation. But if you’ve got a standing start of roughly 5% from your cash for a low risk investor, bag the easy money. Over the years, a lot of people try and over-complicate it. Sometimes the right answer is staring you in the face, and it’s the simplest one.”

In the last financial year, AJ Bell Investments grew by 45% to £6.8bn in assets under management, including £1.5bn in inflows. Its yearly strategic asset allocation begins by using a mean variance optimiser to create portfolios near the efficient frontier. The AJ Bell team then makes tactical adjustments to account for market context.

The MPS options include both active and passive versions, as well as a blended version. Notably, 2024 saw the active MPS outperform the passive version for the second year in a row.

“I’m not sitting here saying I’m beating the drum for active management,” Hughes said. “But I think what it is showing is that there is pockets of the market where active management can do well and that careful manager selection can be beneficial to that.”

US equities

AJ Bell Investments will up its allocation to US equities across all risk profiles, with the highest increase to its risk level three at 11%. In overall allocation, risk level one will have the smallest holding in US equities at 12%, with the highest at risk level four with 25%.

The decision is a reversal from 2024’s strategic asset allocation, where the team opted to take down the allocations to US equities. However, across the last year, the S&P 500 continued to climb over 26%.

As AJ Bell increases its allocation however, it proceeds with guardrails. It will introduce equal-weight products instead of simply market-cap products to protect against some of the concentration risks in the market.

James Flintoft, head of investment solutions, said: “We’re bringing in the equal weight to cushion that allocation, to make sure we’ve got the right time for diversification. The concentration is at a record high. Who knows how far it’s going to go? If you look at the top 20, that’s now 40% of the index, the top 10 is 37%, and the top three is over 20%.”

China allocation

Following the macroeconomic conditions of the past few years, the team also took a closer look at how China should play into its portfolio, not just in its allocation, but how it is viewed as an asset class.

Previously, China was placed within AJ Bell’s emerging markets and Asia Pacific ex-Japan categorisations. But in recent years, it has become clear to the team that the category is not necessarily reflective of where China sits. Instead, it has now been positioned as its own asset allocation.

While the move to separate China has been on the minds of the team for a while, it was not made possible until more recently as ETF products diversified. Now, the team feels there are enough individual China products, as well as emerging markets ex-Japan and ex-China products, to allow them to sit independently.

“This has been a really hot topic over the last couple of years that people want flexibility in their portfolios to dial up and down China exposure. We don’t have at this point a really specific view on China, but we’ve got the lever there should we need it. So we’ve put that as a standalone holding, whereas previously, if we wanted to do something very specific with China, it was very difficult to do,” Flintoft said.

Bonds

In the team’s 2024 allocation, the team found frustration in the performance of bonds, particularly when it came to the low risk end and the performance of US treasuries as markets went through a series of re-pricings on interest rates.

See also: ‘Strap in’: Trump returns to questions on tariffs and inflation

“That’s something that we can sit here today and say, ‘hands up, a year ago, we got that wrong’,” Hughes said.

“We thought that there would be more interest rate cuts than there have been, and I don’t think we’re alone in that position. We had lots of conversations with managers saying that they expected plenty of rate cuts, and they haven’t come through. That’s definitely been painful for us at the lower risk end.”

The surprisingly sticky inflation and higher interest rates have led AJ Bell to cut a significant amount of its exposure to non-GBP cash & bonds. The lowest level of risk now has an exposure of just 9% to the sector, with the highest risk having none.

Last year also presented surprises in the success of high yield, which AJ Bell had decreased its exposure to in 2024.

“We didn’t have enough high yield. We took high yield down a little bit last year and allocated that to investment grade. We were concerned about spread levels last year, because we thought they were pretty tight. They just got a whole lot tighter,” Hughes said.

Looking ahead

For 2025, the AJ Bell team predicts an average case one-year return of 5% for its lowest risk portfolio, and 7.5% for its highest risk portfolio. But the team emphasises that while it’s pleasant to have a high return, it is also important to deliver that return in the right way, and in a comfortable way for investors.

“We’ve all been on plenty of flights, and there are certain people that when the captain says fasten your seat belt signs, they absolutely panic. I’m one that grips the seat and the knuckles go white and I can’t stand any kind of turbulence. There are other people that are blissfully unaware and just sleep all the way through it,” Hughes said.

“That is exactly the same with markets. What we need to make sure is that those people that are in our lower risk funds, that want to grip the seat every time there’s a bit of market noise, they actually can be comfortable and still reach their destination. To the same point, we need to make sure that those people that are happy to sleep through all those lumps and bumps while the seat belt sign is on still reach the destination have the right kind of experience too.”

BlackRock gained assurances from Saba that it would “not engage in any takeover offer”, “seek to control or influence the board”, or “seek to change the composition of the board”.

Trusts that made this pact with Saba include BlackRock’s World Mining, Smaller Companies, Energy and Resources Income, and American Income trusts. It will be in effect until 31 August 2027.

BlackRock reached these agreements despite noting that “Saba does not hold any interests in the issued share capital” of any trust.

Yet it may be an effort to protect itself in case Saba attempts to oust and replace its boards, as it has attempted with Keystone Positive Change, Baillie Gifford US Growth, Edinburgh Worldwide, Henderson Opportunities, and CQS Natural Resources Growth and Income, Herald, and European Smaller Companies.

Each of these trusts has urged shareholders to vote against Saba’s proposals, expressing that they are self-serving and are seeking to take effective control of each company.

Keystone’s chair Karen Brade said she was “appalled by Saba’s actions and conduct”.

“Be under no illusion – we believe this US hedge fund manager is acting opportunistically, seeking to seize control of the board without a controlling shareholding, to pursue its own agenda,” she added.

The Association of Investment Companies (AIC) and Edison have gone a step further, raising their concerns directly with the Financial Conduct Authority (FCA) that Saba’s plans are in breach of the UK Corporate Governance Code.

They argue that Saba’s appointment of its own candidates would break rules protecting board independence.

In its governance code, the City watchdog deems a director biased if they “represent a significant shareholder” or have “a material business relationship with the company” – two factors that could work against Saba, considering it owns between 19% to 29% of the shares in each trust.

Analysts at Edison added: “A scenario in which an activist hedge fund is a significant shareholder driving the replacement of the current boards with its proposed directors, and subsequently appointed as the trust’s investment manager, creates a conflict of interest, especially when setting the terms of the management agreement.”

Venture Capital Trusts (VCTs) have been instrumental in fostering entrepreneurship across the UK since their inception in 1995. These funds provide tax-efficient investment opportunities for individuals while channelling essential capital to early-stage innovative businesses.

The past few years, however, have tested the resilience of VCTs and their portfolios. Rising inflation, interest rate hikes, and political instability have created a challenging environment for the growing companies backed by VCTs.

Despite these challenges, the most recent Budget underscored VCTs as a means of revitalising the UK economy. This endorsement by the Labour government could prove to be a pivotal moment for the sector.

Reanimating VCT fundraising

The VCT fundraising landscape has evolved significantly, shaped by both macroeconomic pressures and changing investor expectations.

Investors remain drawn to the tax benefits of VCTs, which include up to 30% income tax relief on investments of up to £200,000 per tax year, provided shares are held for at least five years. Dividends are also tax-free, and any capital gains realised upon selling VCT shares are exempt from capital gains tax.

See also: Edison: Saba’s ‘sub-par corporate governance’ is breaching FCA rules

These incentives have made VCTs particularly appealing to IFAs advising clients on tax efficiency. But at the same time, uncertainty brought on by high inflation and interest rates has prompted greater scrutiny, with IFAs and individual investors conducting more rigorous due diligence. 

This translates to heightened interest in fund performance and the resilience of underlying companies. Investors are not only seeking growth but also assurance that their capital is being deployed into businesses capable of navigating economic turbulence.

Over the last couple of years, the higher interest rates and stagnant economic environment have created new challenges for the growth companies that VCTs look to back. These conditions have required fund managers to refine their approach to identifying and assessing potential investments.

See also: ‘Strap in’: Trump returns to questions on tariffs and inflation

In today’s climate, VCT managers place an even greater focus on understanding how companies can weather economic challenges and adapt to evolving market conditions.

Restaurant chain Farmer J, which joined the ProVen VCTs’ portfolio in early 2024, exemplifies this. The brand closed all its restaurants during the first lockdown but quickly adapted by reopening its sites to serve home deliveries and continue trading despite an empty city. Since then, the chain has added three new sites and grown revenues – by backing businesses with proven resilience, managers can build portfolios prepared to thrive in uncertain times.

The cautious optimism in the market is reflected in the £882m raised by VCTs in the 2023/24 tax year – the third-highest figure on record – as well as the significant fundraises already delivered in the latest tax year by the likes of the British Smaller Companies VCTs and Mobeus VCTs.

Encouraging signals from the Budget

The Autumn Budget of 2024 reinforced the government’s support for VCTs, with the Chancellor highlighting their role in supporting entrepreneurship.

This followed the earlier extension of the sunset clause for VCT and EIS schemes to April 2035 – a decision that provided much-needed certainty about the future of VCTs for fund managers and investors alike.

It also reaffirmed the government’s commitment to maintaining the tax benefits of VCTs while introducing tax increases in other areas, such as higher capital gains tax rates. These changes have enhanced the tax appeal of VCTs, sparking renewed interest among high-net-worth investors seeking shelter from rising taxes. 

See also: PA Live A World Of Higher Inflation 2025

Moreover, the government’s commitment to innovation was evident in the £20.4bn allocated to research and development (R&D) for the year. This investment aligns with the mission of VCTs, creating fertile ground for portfolio companies in high-growth sectors such as healthtech, climatetech, and artificial intelligence.

These policy measures reflect the Government’s recognition of growth companies – including those backed by VCTs – as vital drivers of economic growth.

Yet, fund managers must remain vigilant, ensuring investments contribute meaningfully to this broader agenda while still delivering returns for investors.

Resilience and opportunity

The VCT sector’s 30-year history demonstrates an ability to weather economic downturns and emerge stronger.

From the dot-com crash of the early 2000s to the 2008 financial crisis, periods of upheaval have tested VCTs, but also revealed their potential. Businesses that pivot, embrace technology, or address societal challenges can thrive amid downturns, creating opportunities for bold, innovative companies.

See also: RBC’s Justin Jewell resurfaces at Ninety One

Today, we find ourselves at a similar inflection point. Rising interest rates and inflation present undeniable challenges, but they also create opportunities for disruptive technologies and resilient business models.

For VCTs, the alignment between government policy and their mission is encouraging. Potential lies in supporting entrepreneurs who are not just navigating adversity but turning it into opportunity.

The journey ahead for VCTs continues to be one of resilience and innovation. With economic headwinds come challenges, but also a renewed sense of purpose. This could be a moment to drive meaningful growth, both for investors and the broader UK economy.

Jewell spent 15 years with RBC BlueBay, where he began as head of high yield trading before becoming a portfolio manager and later a partner of the firm. His career included oversight of a team of 30 and $18bn (£14.7bn) in assets across high yield, leveraged loan, CLOs and multi asset credit.

See also: PA Live A World Of Higher Inflation 2025

In his new position, Jewell be part of the developed markets specialist credit team, and partner with Darpan Harar on Multi Asset Credit and Global Total Return Credit. The team will work to expand the firm’s developed market specialist credit platform.

Mimi Ferrini, co-chief investment officer at Ninety One, said: “Justin brings with him extensive experience, leadership, expertise, and an outstanding track record.  He will play a crucial role in the development and expansion of our developed markets specialist credit platform while delivering long-term value to our clients.

“Ninety One’s credit offering is differentiated through its global and unconstrained universe and its highly dynamic investment approach. We are committed to helping investors capture the full diversification benefits and defensive portfolio properties that global credit markets have to offer.”

He spent nine years at Allianz and has previously held sales roles at Canada Life Investments and Russell Investments.

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Artemis has also appointed Joe Wallace and Freddie Morrissey as sales support executives, who join from Janus Henderson and Muzinich, respectively. All three will be based in Artemis’s London office.

Couzens said: “[Artemis] has a very strong range of distinctive, actively managed funds in core areas for many clients.

“Concentration risk is a key concern of many investors, so we’re seeing a trend of mitigating that risk with active strategies that have proven themselves through various market cycles.”