Almost everyone expects real economic growth in China to slow next year. But most forecasters think the picture will brighten in nominal terms thanks to a rebound in inflation and a bottoming out of home prices. By contrast, we think that China will continue to struggle with overcapacity and deflation. And while the composition of domestic demand may improve somewhat next year, we expect external imbalances to grow not diminish. On a more positive note, the challenging macro backdrop may not prevent a further AI-led rally in Chinese equities, which we think will outperform most other markets.
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