In a standout year for equities, China has regained favor with global investors. Market participants anticipate further returns, driven by the country's strength in artificial intelligence and resilience in trade dynamics.
Global asset managers including Amundi, BNP Paribas Asset Management, Fidelity International, and Man Group forecast continued gains for Chinese stocks in 2026. JPMorgan recently upgraded China to overweight, while Allspring Global Investments' Gary Tan describes these assets as becoming "indispensable" for foreign investors.
Sentiment toward China has shifted from skepticism to recognition—the market offers unique value through technological advancement. The MSCI China Index has surged about 30% this year, outperforming the S&P 500 by the widest margin since 2017, adding $2.4 trillion in market value. With passive funds driving most inflows, active managers' potential return could propel the rally into its next phase.
"China has reached an inflection point, demonstrating stronger resilience. Investors increasingly accept an 'investable' China that provides diversification and innovation," said George Efstathopoulos, portfolio manager at Fidelity International in Singapore. "I'm now more inclined to buy during market pullbacks."
Morgan Stanley data shows foreign long-term funds purchased approximately $10 billion in mainland and Hong Kong stocks through November, reversing 2024's $17 billion outflow. Passive index-trackers drove all inflows, while active managers withdrew roughly $15 billion.
Bank of America's Asia-Pacific equity strategist Winnie Wu notes some global funds still find China's investment threshold high given strong US market performance. "The next leg up for Chinese stocks will be driven by global capital," she said after regular investor meetings.
**The "Slow Bull" Thesis** Optimism centers on emerging tech giants in semiconductors, biopharma, and robotics. The AI boom has fueled rallies in stocks like Cambricon and Alibaba Group Holding. Lagging sectors, particularly consumer discretionary, may rebound.
"Opportunities lie in stocks influenced by 'economic stabilization' rather than 'reflation'," said Man Group's Andrew Swan. "If China's next phase is reflation, significant potential exists."
Chinese equities remain cheap versus global peers. The MSCI China Index trades at 12x forward P/E, compared to 15x for MSCI Asia and 22x for S&P 500.
Caution: 2026 returns likely won't match 2025's. Nomura's base case implies ~9% upside for MSCI China, while Morgan Stanley forecasts ~6% gains from current levels.
Some argue foreign investors aren't essential to China's rally. Domestic mutual funds are buying, while regulatory pushes boosted insurer demand earlier this year. State-backed "national team" funds stand ready to stabilize markets.
The biggest hope lies in China's vast savings pool—households hold ~$23 trillion in deposits. Many believe this liquidity will sustain the uptrend.
"Is investor sentiment improving in their home markets?" asked Amundi's Florian Neto. "Confirmed improvement means markets keep soaring."
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