The foundation for a sustained, long-term bull market in China's capital markets by 2026 is now firmly established. Short-term disruptions will not alter the market's overarching trajectory. While the outbreak of conflict in the Middle East initially triggered significant adjustments, it is not expected to change the market's overall direction. Since the pivotal policy shift on September 24, 2024, a series of pro-growth measures have been implemented, steadily elevating the market's center of gravity and demonstrating active policy support for the capital markets. During the 15th Five-Year Plan period, the focus for capital markets includes boosting investor confidence, actively developing direct financing channels such as equities and bonds, increasing the proportion of direct financing, driving technological innovation and the development of new quality productive forces, and cultivating more listed companies that embody high-quality development requirements. There is a pressing need for more substantial efforts to optimize the structure of capital markets, enhance their investment value, and improve the scientific and effective nature of regulation.
Household savings are anticipated to accelerate their shift into the capital markets, providing a continuous stream of incremental funds. Over the past five years, household deposits in China have increased by nearly 60 trillion yuan, now exceeding 165 trillion yuan, while the total market capitalization of the stock market is only about 110 trillion yuan. As capital markets strengthen and the profit-making effect of funds improves, the migration of household deposits to capital markets is likely to become a major trend, potentially forming a relatively prolonged bull market. Currently, the real estate market's capacity to absorb household deposits is weakening, making capital markets an increasingly important investment channel. Investment options for Chinese investors are relatively limited, primarily consisting of stocks, funds, or bonds aside from property purchases. With the real estate market struggling to absorb large amounts of household savings, the improving performance of capital markets is expected to attract a significant transfer of household savings. The characteristics of this bull market are: first, its "slow" pace, potentially lasting 2-3 years or even 3-5 years; second, a pattern of fluctuating upward movement rather than a one-way rally; and third, continuous market differentiation. Given the current rapid rotation among market sectors, investors may consider appropriate diversification and balanced allocation to avoid over-concentration in a single direction and mitigate risk.
From a valuation perspective, the price-to-earnings ratio of the CSI 300 Index is currently around 14 times, below its historical average, indicating that the market as a whole does not exhibit bubble-like characteristics, although some small-cap stocks may show signs of froth. Considering economic, market, and liquidity factors: economic conditions are expected to improve as pro-growth policies are gradually implemented, driving an economic recovery; at the market level, the profit-making effect is likely to increase; and regarding liquidity, the migration of household savings and increased institutional positioning (including the entry of long-term funds such as insurance capital, pensions, and social security funds) are conducive to market stability, while Renminbi appreciation is attracting foreign capital inflows. Consequently, the performance of capital markets is expected to improve further.
Breakthroughs are continuously being made in China's technological innovation sectors. Areas such as humanoid robotics have shown outstanding performance in recent years, and future opportunities in technological innovation are set to increase gradually. The current stock market carries a triple historical mission: boosting consumption, stabilizing the real estate market, and developing technological innovation to promote the growth of new quality productive forces. Therefore, this sustained bull market represents not only an opportunity for investors to achieve favorable returns but also a crucial manifestation of efforts to stabilize the property market, support consumption, and develop new productive forces.
For ordinary investors, future core assets will consist of properties in prime locations and high-quality stocks or funds. High-quality leading stocks possess long-term investment value. Currently, with significant price declines, these "white horse" stocks, which represent the direction of China's economic development, still offer relatively certain future prospects. In terms of consumption, traditional consumption sectors are experiencing lower growth due to slowing growth in household income, but emerging consumption segments are performing strongly and retain high long-term investment value. Given the current low consumption growth rate, traditional consumption stocks are performing weakly and warrant further observation; allocation may be reconsidered when consumption growth recovers.
The new energy sector has been one of the primary beneficiaries of economic transformation in recent years. The recent surge in oil prices due to the Middle East conflict has again highlighted the correctness of China's new energy strategy. The significant development of photovoltaic and wind power generation, coupled with new energy vehicle sales surpassing those of traditional fuel vehicles, has meant that the impact of rising oil prices on China is relatively limited. Vigorously developing new energy remains a key national policy and will continue to be promoted. The goals of achieving carbon peak by 2030 and carbon neutrality by 2060 represent a major development thrust, creating a new green industry opportunity spanning 40 years. New energy is not only a requirement for low-carbon development but also a crucial energy strategy, significantly reducing dependence on traditional energy sources like imported crude oil—a point of strategic importance that has become even more evident following the Middle East conflict.
Regarding technological innovation, the proposals for the 15th Five-Year Plan have been formally adopted, with key supported directions focusing on areas such as embodied AI, humanoid robotics, chips and semiconductors, computing power and algorithms, the low-altitude economy, solid-state batteries, biomedicine, and deep-sea equipment. These technological innovation directions are undoubtedly critical for future development. The humanoid robotics sector performed exceptionally well last year. The Ministry of Industry and Information Technology has already defined humanoid robotics as a future industry, a direction that remains unchanged this year, keeping it a key area of focus. Last year's activity in humanoid robotics was largely driven by thematic and conceptual speculation; this year is expected to gradually transition to a phase focused on orders and actual performance. As robot mass production advances, component companies will need the capability to supply major manufacturers to sustain their performance. Companies purely reliant on conceptual hype may see their gains reversed. Therefore, when allocating to these sub-sectors, it is essential to focus on high-quality leading stocks. These are characterized by strong profitability, good liquidity, reasonable valuations, high market share, and strong risk resistance; they are more likely to succeed in intense market competition and offer relatively certain developmental returns.
It is important to seize the significant historical opportunity presented by the major shift in household savings. Previously, this shift was directed towards the real estate market. Before the property market peak in 2021, the substantial rise in real estate provided enormous investment opportunities, and investors who capitalized on that property boom achieved high returns. Currently, the real estate market is in an adjustment cycle, and the direction of household savings migration is turning towards capital markets, either through fund investments or direct market participation. Daily trading volume in the two markets has increased from previously less than 1 trillion yuan to around 2 trillion yuan, sometimes even exceeding 3 trillion yuan on certain trading days, indicating growing public enthusiasm for capital market participation. This represents a significant change and a historic opportunity.
A comparison of the market capitalizations of the real estate and stock markets reveals greater growth potential for China's stock market. However, the total real estate market capitalization still far exceeds that of the stock market. At the peak of high prices, China's real estate market capitalization even surpassed the combined total of the US, Europe, and Japan, which is a key reason for the 30%-40% price decline in recent years, essentially a process of bubble deflation. Conversely, the stock market's capitalization is relatively low, even less than 20% of the US stock market's, while China's GDP is about 65% of that of the US. This indicates that Chinese stock valuations are significantly lower than those in developed markets like the US, suggesting substantial future growth potential. The potential for stock market development is also evident from the perspective of household asset allocation. In China, real estate accounts for over 50% of household assets, nearing 70% at its peak, while allocation to equities and other equity-like assets is less than 5%. In contrast, US household asset allocation is the opposite, with over 50% in stocks and funds and less than 25% in real estate. The significant rise in the US stock market in recent years means that US households, through direct stock purchases, fund investments, and 401(k) pension plans, now hold stocks and funds representing over 50% of household assets. This has generated a substantial wealth effect for US families during the stock market rally, helping to maintain high consumption levels. The opportunities arising from the migration of household savings are twofold: on one hand, properties in core regions still hold allocation value as a hedge against inflation; on the other hand, high-quality stocks or funds are also set to become a key allocation focus for households in the future.
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