China’s GDP grew by 4.8% year-on-year in Q3, beating the expected 4.7%. This growth came mainly from strong exports, which contributed 1.2 percentage points to GDP. However, investment declined sharply across several sectors, not just housing. The report indicates that domestic demand is weakening, affected by a less effective goods trade-in program and falling investments. Nevertheless, the growth forecast for 2025 has been revised up to 4.9% from 4.8% because of the solid Q3 performance. For Q4, the growth is still projected at 4.4% year-on-year.

International Trade Dynamics

On the international front, the US-China tariff truce is likely to be extended, as both countries have economic reasons to do so. China may want more than just an extension; it might ask the US to reduce export controls. In exchange, China may relax its rare earth export controls, given its key role in that supply chain. Trade concessions from both sides could help keep negotiations moving forward. With stronger-than-expected Q3 growth from exports, the outlook for the next few weeks is complicated. The strength in exports could stabilize the yuan, leading traders to consider selling out-of-the-money puts on USD/CNH, as officials will likely want to support this positive aspect of the economy. However, the weakness in domestic demand suggests significant yuan appreciation is unlikely. The drop in domestic investment is a concerning indicator for industrial materials. This is reflected in the latest data, which shows a 3.2% month-on-month decline in China’s iron ore imports for September 2025, as per customs data released last week. As a result, traders should be cautious about holding long positions in copper and iron ore, and might consider buying puts or setting up bear put spreads on related futures contracts. The difference between the external and domestic economies creates potential trading opportunities in the stock market. Traders may want to buy call options on the ChiNext index, which heavily features export-oriented tech and green energy companies, while buying puts on the Hang Seng Mainland Properties Index. This strategy seeks to benefit from the robust export sector while addressing ongoing weaknesses in the domestic real estate market.

Economic Indicators and Market Strategies

The latest preliminary Caixin Manufacturing PMI for October, which stands at 49.8, highlights a slowing domestic economy as Q4 approaches. This number indicates a return to contraction, suggesting that government fiscal support measures have not yet had the desired effect. As a result, we should expect increased market volatility, making options that benefit from price swings, such as long straddles on the FTSE China A50 index, a compelling strategy. Looking ahead, US-China trade talks, set for early November 2025, are a significant factor. Given China’s influence with rare earth minerals, we may see big movements in related stocks and ETFs like the VanEck Rare Earth/Strategic Metals ETF (REMX). Buying call options on this ETF could be a way to speculate on China using this as leverage, a strategy reminiscent of the trade disputes in the early 2020s. We remember the market turmoil from tariff announcements between 2018 and 2020, and the stakes are just as high now. The possibility of talks breaking down, even if slim, makes it wise to hedge. Maintaining long positions in volatility through VIX futures or options could help protect against any unexpected negative outcomes from the negotiations. Create your live VT Markets account and start trading now.

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