Global fund managers Amundi SA, BNP Paribas Asset Management, Fidelity International and Man Group all expect Chinese stocks to rise in 2026. JPMorgan Chase & Co. The market has recently upgraded to overweight, while Gary Tan at Allspring Global Investments says the asset class is becoming a “must-have” for foreign investors.
Investors’ view of China has shifted from skepticism to a recognition that the market can deliver unique value through its technological advances. The MSCI China index has risen nearly 30% this year, beating the S&P 500 by the most since 2017 and adding $2.4 trillion in value. With most of the flows driven by passive funds, there is hope that the returns of active money managers can drive the next leg of the rebound.
“China has turned a corner, proving more resilient and investors are now increasingly embracing an investable China that offers diversity and innovation,” said George Afstatopoulos, portfolio manager at Fidelity International in Singapore. “I’d be more than willing to buy China Dips right now.”
ETMarkets.comForeign long-term funds bought about $10 billion of shares in central China and Hong Kong as of November this year, against a $17 billion return in 2024, according to Morgan Stanley data. The flow was driven entirely by passive investors, who track indices, while active fund managers pulled out about $15 billion.
The reason is partly because many activist investors — who rely on stock picking — still can’t shake off years of worries about a slowing economy and Beijing’s sudden crackdown on the private sector. While officials have taken a more business-friendly stance this year, stimulus has fallen short of investors’ expectations.
Some global fund managers said investment pressures in China remain high, which is also improving the U.S. market, said Winnie Wu, director of Asia Pacific equity strategy at Bank of America, who regularly meets with investors to gauge the market. But she said improved incomes and changes in China’s long-term inflationary agenda could change that. “The next leg of China’s rally will be driven by international funds,” she said.
slowly
The bull case for Chinese stocks rests on optimism about a growing class of technology in chips, biopharma and robotics, along with hopes that the world’s second-largest economy can finally shake off inflationary pressures.
Voices about artificial intelligence led to big jumps in shares such as Cumbricon Technologies Corp. and Alibaba Group Holding Ltd. But sectors that have lagged the broader market this year, especially consumer goods, could also lead to a bounce.
“The opportunity is in stocks that are influenced by the search for stability in the economy rather than a reflection,” said Andrew Swann, former Japan equity director for Asia at Maine Group. “If reflection is the next phase for China, there are many opportunities in it.”
ETMarkets.comInvestors also point out that Chinese stocks remain cheaper than international peers. The MSCI China gauge, which tracks shares listed in the mainland and Hong Kong, trades at 12 times forward earnings, compared with 15 for MSCI Asia and 22 for the S&P 500.
Warning: Investors should not expect the same level of returns next year. Nomura Holdings Inc.’s base case for MSCI China suggests an upside of about 9% from current prices. Morgan Stanley also expects a gain of around 6% from here.
Some argue that foreign investors are not essential to China’s stock rally. Local mutual funds have been buying, and are also helping to boost demand from insurers after a regulatory crackdown earlier this year. Beijing’s desire to engineer a sluggish bull market means state-linked funds known as the National Team are also poised to buy shares during the rocky period.
The biggest hope, though, comes from the country’s savings stock. Households are sitting on about $23 trillion in deposits. With the long-overdue real estate crisis still causing pain and fixed-income products offering meager returns, many investors think this stash of cash will help power the market higher.
“Do we have a sense that real estate investors are coming back in their market?” said Florian Nieto, Head of Investments in Asia at Amundi. “If we have confirmation of this development, the market will continue to fly.”
