As 2026 begins, global investors are significantly increasing their bets on Chinese stocks and the yuan. Against a backdrop of rising global uncertainties, this move signals a more decisive shift of capital towards Chinese assets.
From Goldman Sachs to Bernstein Research, a subsidiary of Société Générale, multiple global investment institutions have upgraded their ratings for the world's second-largest stock market, citing attractive valuations, sustained industrial policy support, and a positive earnings outlook.
Market participants are also ramping up long positions on the yuan after Chinese authorities allowed it to break through the key psychological level of 7 per US dollar. Some institutions forecast the yuan could appreciate to as high as 6.25 per dollar within the year. Institutions including Citigroup, BNP Paribas Asset Management, and Bank of America hold bullish stances on the currency.
The chorus of bullish calls from global institutions on Chinese assets is growing louder, set against the backdrop of China achieving a rare simultaneous rally in both stocks and its currency last year. This virtuous cycle effect could further reshape market confidence in Chinese assets. Concurrently, multiple sectors of the world's second-largest economy are demonstrating resilience beyond expectations—exports are robust, manufacturing activity continues to recover, and the banking system remains stable—leading the market to anticipate that previously lagging sectors like property and consumption might also warrant a reassessment.
Kristy Chen, Investment Strategist at Franklin Templeton Institute, stated, "A stronger yuan helps boost US dollar-denominated asset returns, improves market risk sentiment, and thereby supports the stock market. Simultaneously, genuine capital inflows into the stock market, driven by improved corporate earnings and renewed market confidence, will in turn provide support for the yuan's exchange rate."
Last year, a key index tracking Chinese companies listed in Hong Kong surged over 22%, ranking among the world's best-performing major stock indices. In 2025, the yuan appreciated over 4% against the US dollar, marking its largest annual gain in five years. This was also the first time since 2017 that Chinese stocks and the yuan strengthened in sync.
The momentum of rising stocks and currency has continued into the start of 2026, with the yuan holding firmly above the closely watched 7 per dollar level, and the A-share market climbing to a four-year high.
Bernstein Research and Goldman Sachs have recently joined the camp of those bullish on Chinese stocks, with Bernstein upgrading its rating on the Chinese market to "overweight" last week.
Currently, the Hang Seng China Enterprises Index trades at a forward price-to-earnings ratio of 10.7 times. In comparison, the S&P 500 Index's forward P/E is 22.3 times, and the MSCI Asia Pacific Index's is 15.3 times.
Goldman Sachs also raised its year-end target for the CSI 300 Index to 5,200 points last week, implying a further 9% upside from Tuesday's close. The bank simultaneously upgraded its earnings growth forecasts for Chinese companies, expecting profit growth to accelerate to 14% for 2026-2027, up from 4% in 2025, benefiting from "the commercialization of AI, policy stimulus, and ample liquidity."
Fresh evidence of exuberant investor sentiment emerged on Tuesday, when trading volume on China's A-share market reached a record high of 3.65 trillion yuan (approximately $523 billion), far exceeding the average daily turnover of 1.13 trillion yuan over the past five years.
Wang Dan, Chief Investment Officer at Shenzhen Zhanbo Investment Management Co., said, "The stock market's slow-bull rally will continue this year. Although current economic fundamentals and data are not yet sufficient to support a full-blown bull market, factors like declining interest rates, increased willingness to allocate capital, and long-term positioning in undervalued assets all provide favorable conditions for the continuation of a structural bull market."
Beyond the AI sector, analysts remain optimistic about the prospects of several other industries, including healthcare, the battery supply chain, and agriculture.
Of course, concerns about the sustainability of the rally persist. Factors such as the sluggish recovery of China's consumer market, ongoing deflationary pressures, and the absence of massive stimulus measures have sparked some doubts about the staying power of the market's upward momentum. Regulators' announcement on Wednesday tightening margin trading requirements also indicates growing concerns about an overheated market and an attempt to cool it down.
Nevertheless, China's technological breakthroughs and its demonstrated resilience to external shocks, such as US-China trade friction, have impressed some institutional forecasters. The World Bank recently upgraded its growth forecast for the world's second-largest economy.
This optimism is also prompting some market observers to re-examine previously underperforming sectors.
Ben Charoenwong, Associate Professor at INSEAD, commented, "If the market consensus has shifted to favouring China's AI sector, then a contrarian investment approach should focus on sectors that remain underweighted, with property and real estate credit being at the core."
Despite China's breakthroughs in AI and an easing of US-China trade tensions providing initial support for stocks last year, the yuan's accelerated strengthening in December, breaking through the key 7 per dollar level, further boosted investor optimism.
In a recent report, Citigroup economists led by Xiangrong Yu wrote, "In 2025, there was a significant positive shift in the narrative tone investors used for China." The bank expects the yuan to enter a phase of "managed appreciation," potentially reaching 6.8 per dollar within the next 6 to 12 months.
Similarly, Goldman Sachs issued a 12-month forecast in November predicting the yuan would reach 6.85 per dollar; Bank of America set its year-end target for the yuan at 6.8 per dollar. BNP Paribas Asset Management expects the USD/CNY rate to fall to a range of 6.5-6.8 this year, while Eurizon SLJ Capital sees the yuan appreciating to 6.25 per dollar by the end of 2026.
UBS Group, however, believes that while the yuan may not appreciate against the dollar this year, it could strengthen against the currencies of China's major trading partners.
An official gauge measuring the trade-weighted yuan fell over 3% last year, partly because the currencies of China's major trading partners appreciated more significantly against the dollar.
Ning Zhang, Economist at UBS Group, stated during a briefing on Tuesday, "There is room for short-term appreciation in the yuan to reflect China's strong export performance and trade surplus, especially against the backdrop of the weakening trade-weighted yuan last year."
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