A more resilient Chinese economy means investors should buy stocks halfway across the world, says one firm

Barclays recommends investors remain overweight the UK's FTSE 100, which recently hit a record high of 9,070, citing its defensive and commodity-tilted sector exposure as an attractive hedge against potential trade risks. The bank anticipates the index will benefit from a more resilient Chinese economy, evidenced by 5.3% GDP growth in H1 2025, even as it maintains cautious expectations for future stimulus. This positioning allows the FTSE 100 to capitalize on improving China sentiment while offering relative safety amidst looming reciprocal tariffs.

Analysis

Barclays has reiterated an overweight recommendation on the UK's FTSE 100 index, which recently achieved a record high of approximately 9,070, reflecting an 11% gain year-to-date in 2025. The firm's positive stance is twofold: it views the index as a relative safe haven within Europe and as an indirect beneficiary of China's economic stabilization. This defensive positioning is attributed to the index's lower beta and its attractive 'barbell' combination of defensive and commodity-tilted sectors, which offers a hedge against potential tariff risks, particularly with the approaching August 1 deadline for EU reciprocal tariffs. The bullish case is further supported by China's resilient economic performance, evidenced by a 5.3% GDP expansion in the first half of 2025 that surpassed Beijing's 5% target. While Barclays remains conservative about the scale and impact of future Chinese stimulus, it notes that UK-listed firms derive approximately 9% of their revenue from China. This exposure has contributed to the strong performance of UK equities, with the iShares MSCI U.K. ETF (EWU) gaining 19% this year, outperforming the S&P 500's 7% rise and trailing only the iShares MSCI China ETF's (MCHI) 25% gain.

Key Decisions for Investors

• Investors should consider an overweight allocation to the UK FTSE 100 as a strategic play to capture upside from China's economic resilience while hedging against European trade policy risks.
• The primary appeal of the UK market is its barbell structure of defensive and commodity sectors; monitor global commodity trends and sector rotations as a key indicator for the thesis's continued validity.
• While China's 5.3% H1 GDP growth is positive, closely watch for details on fiscal stimulus expected around the September-October meetings, as Barclays notes that broader economic strength is necessary to sustain the recent equity market rally.
• For diversification beyond the UK index, evaluate European exporters in the semiconductor, luxury goods, mining, and auto sectors, which offer a more direct but potentially underappreciated exposure to Chinese demand.