
Just to make sure, we are not talking about President Trump. It is the new Chinese year which starts tomorrow. Interestingly, the metaphors and meaning of the snake in Chinese literature and mythology are polar opposites. On the one hand, the snake belongs to the yin, associated with femininity but also thought to be the dark and negative side of one's self. Poisonous snakes are often associated with evil women who seduce men and take their yang to nourish their own yin. However, snakes also have a positive symbolism. For example, they are regarded as little dragons and the skin snakes shed is referred to as the dragon’s coat, symbolizing good luck and rebirth. The snakes can also represent wealth and wisdom.
For markets, more important than the cultural interest, is how the local consumer will behave during this festive period. All the data and market reports from the region have been along the same lines for almost two years now: the Chinese consumer has been so burned from the real estate bubble burst and so traumatized by the pandemic lockdowns that has amassed enormous savings in the banks, refusing to spend it. The Chinese savings rate is the highest among the G-10 countries and although this is good news for the health of the household balance sheets it has taken a toll on the economy and on the revenues of foreign companies exporting their goods to China. The bright spot has been travelling, which has almost returned to the pre-pandemic levels but again anecdotal reports and some evidence suggests that they spend far less during their trips than before.
At the same time, President Trump appears to have softened his stance against China. First the phone call between the two presidents which Trump characterized as a positive first step to work together, then the Chinese Vice Premier's visit to the inauguration ceremony and finally last week's comments that tariffs might not be coming after all , if China is willing to negotiate in good faith. These events are in stark contrast with what the consensus thinking was just a few weeks ago, with most analysts calling for a head-on collision between the two countries on day-1 of the new administration, not to mention the fact that the market was expecting the 60% tariffs on all goods imported, as per Trump's claims during the election campaign. The world needs the two powerhouses working together in order to safeguard peace and prosperity, and it is a delight to see that Trump's first days have been rather on a reconciliatory tone than aggressive. Of course, things can change instantly and we should not open any champagnes yet.
Can China surprise in 2025 ? If history is any guide, China was the best performing equity market during Trump's first term in office. But of course historical patterns are not enough. The important change in the government's stance, during the summer, against providing a large stimulus and the measures taken since then ensure that a floor has been put under the local economy, as a starter. It is also important there is a considerable change in the government's attitude towards the markets, which they now want to protect from falling further and "push" the average Chinese to invest in local equities. Further to the various measures announced so far, last week the regulators vowed again to take measures to make the stock market more attractive to investors and are pushing the large state-owned insurance companies to invest 30% of their new policy premiums in local equities in 2025. Perhaps the biggest surprise would come from China's Artificial Intelligence progress with a totally different strategy than the US, and despite being stripped of the most advanced chips and technology due to western sanctions. Using cheaper semiconductors and with an open-source attitude, the Chinese companies are now catching up fast and threatening to redefine the sector.
The volume of Trump's first executive orders was massive and their effect is yet to be felt For starters, the US will leave the World Health Organization and the Paris Climate accord, while authorizing the drilling for oil on federal land that was up to now "frozen" to exploitation. He ordered the immediate deportation of thousands of immigrants and tried to end the birth-right citizenship , but this was blocked by a federal judge for now. He also gave orders to stop all foreign aid , with some exceptions for Israel/Egypt and food programs. Interestingly, on tariffs he was much more sanguine than feared, with China and Europe being spared for now and Mecixo/Canada facing a 25% tariff as of February 1st, if they do not renegotiate their tri-party trade agreement. And last but not least he pardoned about 1'500 individuals who took part in the Capitol invasion on January 6th 2021, in an attempt to overthrow the new (Biden) administration. A new week has started with more Trump news and headlines to follow.
Global equities moved higher last week, with both the US and Europe advancing by 2% on average. This time Hang Seng followed through with a 2% gain too. A positive sign is that market breadth is improving as the US market is rotating away from the Mega caps and into attractively valued sectors that had been unwarrantly left behind. Healthcare (+3%) was the best performing sector, while Energy (-3%) took a breather. Trump's willingness to drive oil prices lower took a toll on the sector. In Europe, consumer names and especially luxury and beverages rallied further, after Trump's comments about not imposing tariffs on China at this early stage.
Global manufacturing seems to be improving, at a time when services have rolled over, which is positive for inflation. The Eurozone Composite PMI rose to a five month high of 50.2, exceeding consensus expectation of 49.7. The pick up was driven by a 1 point rise in the Manufacturing PMI to an 8-month high of 46.1, which still however remains in recession levels (below 50). In contrast, the Services PMI fell by 0.2 points to 51.4, but remaining in positive growth territory. The same situation occured in the US, with Manufacturing rising back above 50, but Services dropping to 52.8, a whopping 4 points lower since last month.
The ECB and FED are meeting this week and traders will be on their marks. Given the recent explosion in yields and with short positions a crowded consensus, things can move fast in any direction, which will spill into the equity markets (in both directions). The FED goes first on Wednesday and is expected to leave interest rates unchanged. It was shocking to hear President Trump demanding from the FED to lower rates and claiming that he knows rates much better than the FED "and especially much better than the guy that is in charge of them all". This behavior and intervention is more akeen to Venezuela or Argentina (before Milei), than the USA. In our turf, the ECB is expected to cut rates by 25bp but most important will be the message to be conveyed through Mrs. Lagarde's press conference.
The fourth quarter earnings activity picks up this week as several of the "Magnificent 7" names are scheduled to report. These include Microsoft (29-Jan), Meta (29-Jan), Apple (30-Jan) and Amazon (30-Jan). According to FactSet, their earnings in aggregate are expected to increase +21.7% y/y, while Microsoft and Apple forecast to grow less than 10%. This compares to the +9.7% growth expected for the remaining 493 S&P 500 companies, which would still mark the best growth since Q2 of 2022.
Chart of the Week : The year of the snake is not friendly to US equities, on average.

The above chart, compiled by Pictet, shows the return of the S&P500 during the Chinese Snake years since the early 20th century. The first observation is that the change in absolute terms is rather large, as in all but one case the move was equal or higher than 10% (in both directions). In terms of occurrences, in five out of eight periods (62%) the S&P500 had a negative year. The big drop in year 2001 also coincided with the dot-com bubble burst. On a more optimistic note, the most recent snake year (2013) was very positive for US equities with an almost 30% return. Since the 1960s, the positive and negative returns alternate at every new cycle, which means that according to this pattern we could have a negative year ahead, for US equities. Of course all this analysis is primarily for amusement and entertainment, rather than the basis for investment decisions.
Disclaimer
• The content of this document has been produced from publicly available information as well as from internal research and rigorous efforts have been made to verify the accuracy and reasonableness of the hypotheses used. Although unlikely, omissions or errors might however happen.
• The data included in this document are based on past performances and do not constitute an indicator or a guarantee of future performances. Performances are not constant over time and can be positive or negative.
• This document is intended for informational purposes only and should not be construed as an offer or solicitation for the purchase or sale of any financial instrument and it should not be considered as investment advice. The market valuations, views, and calculations contained herein are estimates only and are subject to change without notice. Any investment decision needs to be discussed with your advisor and cannot be based only on this document.
• This document is strictly confidential and should not be distributed further without the explicit consent of Kendra Securities House SA.
• Sources: Chart of the Week : Pictet
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