Calling the end of US exceptionalism has become an annual ritual for investors, and one that rarely pays off. Yet as 2026 gets underway, stretched valuations, crowded AI trades and geopolitical tensions are prompting a broader search for opportunity. After a stronger-than-expected 2025, Raheel Altaf, manager of the Artemis SmartGARP Global Emerging Markets Equity Fund, tells us why he believes that China is back in focus, with improving fundamentals, renewed policy support and compelling valuations. The question for investors now is whether the coming year finally marks a turning point.
Wondering whether the New Year will bring an end to US exceptionalism has become something of a tradition among investors as they play the annual forecasting game.
In 2025 it looked like the spell might finally be broken amid the fallout from President Trump’s “Liberation Day” debacle. But things didn’t quite work out like that.
The US appeared to defy the odds and regain its primacy. The age of the Magnificent Seven tech titans segued into a mounting frenzy around artificial intelligence, with Nvidia soaring to a market capitalisation exceeding that of many developed nations.
AI worries aside, the US market seems in reasonable health. But the fact that there’s room for doubt underlines the wisdom of seeking opportunities beyond the largest economy on Earth. How about starting with the second-largest?
China delivered a stronger-than-expected performance in 2025, driven by incremental policy support and improving earnings from technology, industrials and consumer services. The MSCI China Index was up more than 30% by the end of November[1], beating the S&P500 (up c.16%). We expect further gains in 2026, though at a more measured and selective pace. We can find plenty of reasons for feeling optimistic.
Renewed and proven strength
It’s first worth considering the story of US-China relations during 2025. Veering between cordial and confrontational, they demonstrated China’s growing strength.
Washington ramped up trade tariffs to bully Beijing into concessions. It failed. Trump largely backed down and more recently has even agreed to allow the sale of Nvidia’s advanced H200 AI chips to China[2].
China earned this resilience. It used the years between Trump 1.0 and Trump 2.0 to put itself in a position to resist any sort of strong-arm tactics from the US, not least in its development of the rare earths industries which have given it negotiating heft.
From an economic perspective, governance reforms have helped, too. Drawing inspiration from Japan’s attempts to re-emphasise the benefits of sound stewardship, boost business performance and reignite investor interest, China has encouraged companies to become more shareholder-friendly. We have seen a stabilisation in the property market and a continued recovery in consumption, encouraged by policy stimulus.
In stark contrast to the policies of just a few years ago, the Chinese government’s attitude towards entrepreneurship and cutting-edge innovation is now decidedly positive.
Nvidia may be the king of the chips, but most expect China to catch up at some point, and perhaps soon. The launch of DeepSeek in early 2025 – China’s first state-of-the-art chatbot – sent shockwaves through Silicon Valley, proving that the US is far from assured of triumphing in the AI race[3].
From fast follower to frontrunner
One thing is very clear – China has moved away from being the “workshop of the world”. Previously derided as a habitual imitator, it now has a clear edge in several key fields, electric vehicles (EVs) arguably foremost among them. BYD cemented its standing as the biggest producer of EVs in 2025 – comfortably ahead of Tesla, whose pre-eminence once appeared all but unshakeable – with Wuling, Geely and Li Auto also among the frontrunners.
Relatedly, China is also home to the leading maker of batteries for both EVs and energy storage. This reflects a broader expertise in sustainable energy. Although fossil fuels still account for the bulk its energy mix, China has named green finance as a pillar of its notion of a financial system fit for the 21st century[4].
That said, more recently we have tapered our enthusiasm towards mega-cap technology and e-commerce businesses. Competitive pressures and large investments in AI are leading to a reduction in near-term profitability. Rather than take a long view about whether these are good businesses and staying the course, we have reduced our exposure (selling out of JD.com and reducing Alibaba) and have looked elsewhere for opportunities.
With foreign ownership of Chinese stocks still relatively low, we are finding plenty of high-quality businesses, with strong balance sheets, trading at attractive valuations that seem to offer more immediate rewards with less risk.
I don’t like forecasting games, and I don’t see much value in trying to call the direction of the US market in 2026. I’m interested in individual companies. I know that as an investor you only have to get more decisions right than wrong to succeed in the long term. Experience suggests that buying good companies on low valuations with positive earnings momentum is a good way of tilting the odds in your favour in this regard. And as we welcome in the New Year, few countries offer more companies fitting that bill than China.
Raheel Altaf is manager of the Artemis SmartGARP Global Emerging Markets Equity Fund.
