Multiple major financial institutions, including Standard Chartered, Goldman Sachs, Morgan Stanley, and UBS, have recently expressed a collective positive outlook for the performance of Chinese equities in the second half of the year. From upgrading research ratings to committing actual capital, foreign investors are demonstrating their stance on Chinese assets through concrete actions.
In its mid-year outlook for the Chinese market, Standard Chartered maintains an overweight rating on Chinese stocks, citing significant valuation discounts compared to other major global markets, coupled with the sustained AI investment theme and deepening industrial upgrading trends. In a recent report, Goldman Sachs reaffirmed its overweight position on A-shares, stating that the AI sector in the A-share market is not in a bubble overall. A Morgan Stanley report noted that feedback from recent global roadshows indicates rising interest from international investors in Chinese stocks, with a trend of gradual capital reallocation expected over the coming months. A UBS Securities China equity strategist stated that the profit growth rate for all A-share companies is projected to increase to 11% this year, up from 3.9% last year.
This wave of foreign optimism is not without foundation. In its World Economic Outlook report published recently, the International Monetary Fund revised down its 2026 global economic growth forecast to 3% but raised its projection for China's economic growth by 0.2 percentage points to 4.6%. Against a backdrop of generally pressured growth expectations for major global economies, China stands out as one of the few countries to receive an upward revision from the IMF.
According to Chen Li, Director of the Research Institute at Chuan Cai Securities, this collective foreign confidence in Chinese assets stems from a combination of three factors: valuation discounts, profit recovery, and industrial upgrading. This sends a clear signal that global capital is reassessing the strategic value of Chinese assets, which have shifted from being an 'option' to a 'necessity'.
On the capital front, the actual actions of foreign institutions are also accelerating. Data shows that as of May, various types of overseas investors hold over 4 trillion yuan in A-share market capitalization, making them significant participants in China's capital markets. So far this year, more than 570 foreign institutions have conducted nearly 3,900 research visits to A-share listed companies. Sectors such as integrated circuits, electronic equipment, and instruments have been key areas of focus.
Northbound capital, which represents funds from foreign investors buying A-shares through the Hong Kong-Shanghai and Hong Kong-Shenzhen Stock Connect programs, has become a core indicator for gauging foreign sentiment towards Chinese assets. The trend of foreign capital increasing allocations to Chinese assets has persisted throughout the first half of the year. Data from East Money Information shows that in the first quarter, northbound capital recorded a net purchase of 327.4 billion yuan in A-shares, a record high for the period. In the second quarter, net purchases reached 208.6 billion yuan, setting another new quarterly record since the launch of the Stock Connect programs. By the end of the second quarter, northbound capital held positions in 3,958 A-share companies, with a total market value of 3.13 trillion yuan. This marks a significant increase from the 2.58 trillion yuan held at the end of the first quarter and represents the first time the figure has surpassed 3 trillion yuan.
In terms of portfolio structure, hard technology has become the dominant theme for foreign capital allocation. By the end of the second quarter, seven of the top ten companies by northbound capital market value were from the hard tech sector. For the first time, the top three positions were all held by hard tech companies: Contemporary Amperex Technology Co., Ltd. (CATL), Zhongji Innolight Co., Ltd., and NAURA Technology Group Co., Ltd.. Furthermore, the semiconductor industry, with a portfolio value exceeding 450 billion yuan, has become the largest sector holding for northbound capital, showing a quarter-on-quarter increase of nearly 130%.
Chen Li further commented that the sustained inflow of foreign capital is influencing the pricing logic of A-shares. While the market previously emphasized the brand premium of leading consumer companies, foreign capital now places greater value on the scarcity pricing of core technologies in the hard tech sector. Global capital is beginning to reassess the value of Chinese assets based on the irreplaceability of their positions in supply chains. As foreign trading activity increases, the integration of the A-share market with international pricing systems will deepen further.
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