China’s equity markets are quietly rebuilding investor confidence as attractive valuations, policy support, and strong industrial names draw foreign funds back — despite economic headwinds and ongoing pressure in the property sector.
Key Highlights
- CSI300 +16% YTD, matching the S&P 500.
- Hang Seng +30% YTD, heading for its best year since 2017.
- Record HK$1.38 trillion (US$177B) has flowed from mainland China into Hong Kong.
- Valuations remain compelling:
- Shanghai & Hang Seng: ~12x earnings
- S&P 500: 28x, Nikkei 225: 21x, FTSE 100: 21x
What’s Driving Sentiment
- Growing belief in a multi-year reallocation cycle of foreign investors back into China (Morgan Stanley).
- Strong AI-linked gains, led by DeepSeek’s impressive model release.
- Confidence in Beijing’s anti-involution policies aimed at ending price wars and improving margins.
Where the Money Is Flowing
- Industrial & cyclical picks gaining momentum: steel, chemicals, coal, photovoltaics.
- ETF inflows over the past 3 months:
- ¥13.5B → CSI Battery Thematic Index
- ¥11.2B → CSI Chemicals Index
- Tech-heavy STAR 50 Index saw ¥31.1B outflows, signalling rotation into “value China”.
Investor Outlook
Many fund managers say the rally is only halfway through, driven by:
- Potential foreign inflows
- Local depositors reallocating savings into equities
- The rise of “New China”: AI, biotech, innovative drugs.
Still, caution persists amid slowing factory activity and lingering policy concerns — but valuations are too compelling for global investors to ignore.