Optimism builds for Chinese equities as policy support and tech innovation offset lingering risks.

Summary:

• Chinese equities rallied strongly in 2025, supported by exports, AI advances and policy easing.

• Technology and housing stabilisation policies are key areas of investor optimism.

• Corporate governance and capital returns improving, with rising dividends and buybacks.

• Earnings growth expected to drive 2026 performance, after valuation-led gains last year.

• Risks remain from trade tensions, weak consumer confidence and AI investment volatility.

Note: Chinese markets are closed all this week:

As China moves into the Lunar New Year holiday period, investors are expressing renewed optimism toward Chinese equities, particularly in technology and policy-driven segments such as housing. The Year of the Horse, traditionally associated with boldness and forward momentum, coincides with a market backdrop that has already delivered strong gains over the past 12 months.

Chinese equities posted robust returns in 2025, supported by resilient export performance, advances in artificial intelligence and targeted policy easing. Economic growth met official targets despite ongoing property sector strains and external trade frictions. Investors argue that the rally was initially driven by a re-rating of valuations from depressed levels, but increasingly point to structural improvements that could sustain momentum.

Technology remains a focal point. Domestic innovation in AI models and continued investment in data centres have strengthened confidence in China’s push toward technological self-sufficiency. Meanwhile, corporate behaviour is evolving. Companies are placing greater emphasis on capital discipline, governance standards and shareholder returns, with dividend payouts and buybacks rising meaningfully over recent years. This shift is seen as enhancing the quality and durability of equity returns.

Valuations, while no longer at distressed levels, are still viewed as trading at a discount to global peers. Investors expect earnings growth to play a larger role in 2026 performance after last year’s valuation-driven rebound. Financials, internet platforms and select consumer names are among the preferred exposures.

Policy support is another key theme. Authorities have introduced measures aimed at stabilising the property market and lowering financing costs. There are also signs of renewed emphasis on boosting domestic consumption, including potential easing of restrictions previously imposed on property developers. However, consumer confidence surveys remain subdued, reflecting lingering concerns about housing prices and labour market conditions.

Risks persist. China’s economy continues to rely heavily on investment and exports, leaving it vulnerable to renewed trade tensions or shifts in global demand. A slowdown in AI-related investment could also weigh on growth, given the increasing weight of the technology sector.

Even so, many investors believe structural reforms, policy backing and innovation-driven growth leave Chinese equities positioned for further gains, provided earnings begin to justify valuations.