In September, China is set to unveil new policies aimed at expanding services consumption. This initiative follows recent data releases, which again indicated weaker performance.
The latest figures show a decrease in industrial profit, with July experiencing a 1.5% year-on-year decline. This is an improvement from the previous month, which saw a 4.3% decrease.
Shifting Government Focus
With China signaling new policies in September to boost services consumption, we see a clear trading opportunity forming. The announcement comes as no surprise, given the ongoing industrial weakness confirmed by the -1.5% drop in July industrial profits. This reinforces our view that the government’s focus is shifting decisively towards the consumer-led side of the economy.
The data confirms a larger trend we have been tracking since late 2024. While China’s official Services PMI did register at 53.5 for July 2025, indicating expansion, its pace has been slowing, and consumer confidence has remained fragile. This planned stimulus is not just a reaction to one month of bad data but a necessary move to support the economy’s main engine of growth.
In the weeks leading up to the September announcement, we should build long positions in consumer-focused Chinese equities. This can be done by buying call options on tech giants and e-commerce platforms listed on the Hang Seng Tech Index, or through ETFs like KWEB. Looking at historical precedent, similar consumption-focused stimulus announcements in 2023 and 2024 led to sharp, albeit sometimes short-lived, rallies in these names.
Market Strategy Implications
Implied volatility on these assets has already begun to rise, suggesting the market is starting to price in a policy-driven move. By entering now, we can still capture upside from the expected announcement before volatility gets too expensive. This strategy positions us to benefit from the direct target of the upcoming government support.
Conversely, the continued slump in industrial profits suggests a bearish outlook for industrial commodities. The data indicates that demand for materials like iron ore and copper will likely remain suppressed. We should therefore maintain short positions in related futures contracts to hedge our portfolio against the weakness in China’s old economy.
The outlook for the yuan remains uncertain, presenting a chance to trade currency volatility. A strong stimulus could boost the currency, but any disappointment could see the USD/CNH pair break higher. We can use option straddles on the currency to position for a significant move in either direction once the policy details are revealed.
