China’s PMIs for December showed positive growth, marking the first increase since September. Both manufacturing PMIs indicated expansion, with the official PMI rising nearly a point to 50.1, exceeding expectations. RatingDog’s PMI also reached 50.1, reflecting a small improvement. The non-manufacturing PMI had the biggest increase, climbing 0.7 points to 50.2. This means it returned to expansion after falling below the neutral mark in November. The construction sub-index jumped 3.2 points to a nine-month high of 52.8, a result of recent stimulus measures. The services sub-index saw a slight improvement but stayed below the neutral mark.

Support Measures Boost Growth

These results indicate that recent support measures are boosting growth. China plans to continue targeted fiscal support and gradual monetary easing to stimulate domestic demand. The Central Economic Work Conference emphasized the need to support domestic demand for 2026, aiming to stabilize investment after a decline in fixed investment during the second half of 2025. The December 2025 PMI data showed both manufacturing and services moving back into expansion for the first time since last September. This suggests that support measures from late 2025 are starting to impact the economy. For us, this indicates a cautious shift in sentiment towards assets related to Chinese growth. The standout detail was the construction sub-index, which soared to a nine-month high, providing strong support for industrial commodities. Dalian iron ore futures reacted quickly in the first week of January, rallying over 4% to reclaim the $145 per tonne level. This trend makes bullish strategies, such as buying call options on copper miners and related commodity ETFs, an attractive possibility for the coming weeks.

Challenges for Broad Recovery

However, the recovery isn’t widespread yet, as the core services index remained slightly below the neutral 50 mark. This indicates that consumer-focused companies may still face challenges, limiting the growth potential for broader equity indices like the Hang Seng. Therefore, strategies like selling out-of-the-money call spreads on the FXI ETF could help profit from a potentially range-bound market. Future guidance suggests more “piecemeal” and “targeted” support rather than a large credit stimulus. This means the government desires a controlled recovery, which should reduce excessive market volatility compared to the sharp fluctuations seen during the property sector concerns in 2025. In this environment, selling volatility through options on the offshore yuan (CNH) might be profitable, as the currency is expected to stay stable. Create your live VT Markets account and start trading now.

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