Global fund managers are increasingly optimistic about China's stock market, anticipating continued growth in 2026. Investors are betting on China's strength in artificial intelligence and resilience in U.S.-China relations to drive further upside.
Major asset managers, including Amundi, BNP Paribas Asset Management, Fidelity International, and Man Group, project sustained gains for Chinese equities. JPMorgan recently upgraded China stocks to "overweight," while Allspring Global Investments' portfolio manager Gary Tan described the asset class as becoming "indispensable" for global investors.
Market sentiment toward China has shifted from skepticism to recognition of its unique investment value through technological advancements. The MSCI China Index has surged about 30% this year, outperforming the S&P 500 by the widest margin since 2017, adding approximately $2.4 trillion in market value. While passive funds have driven recent inflows, active fund participation could fuel the next phase of growth.
Fidelity International's Singapore-based portfolio manager George Efstathopoulos noted, "China's resilience is increasingly acknowledged, with investors embracing it as both a diversification tool and innovation hub. Any market pullback would present buying opportunities."
Morgan Stanley data shows foreign long-term investors net purchased about $10 billion of mainland and Hong Kong stocks via stock connect programs through November—a stark reversal from 2024's $17 billion outflow. Notably, these inflows came entirely from index-tracking passive funds, while active managers withdrew roughly $15 billion.
Some active investors remain constrained by outdated perceptions of China's economy. Bank of America's Asia-Pacific equity strategist Winnie Wu observed that while some fund managers still see high barriers to Chinese allocations amid strong U.S. markets, improving corporate earnings and easing deflationary pressures may change this dynamic. "The next phase of China's market rally will likely be globally driven," she added.
The bullish case rests on two pillars: emerging tech leaders in semiconductors, biotech, and robotics; and expectations of reflation in the world's second-largest economy. While AI enthusiasm has lifted stocks like Cambricon Technologies and Alibaba, lagging consumer sectors are seen as catch-up plays.
Man Group's head of ex-Japan Asian equities Andrew Swan highlighted opportunities in "stocks benefiting from economic stabilization rather than inflation—though China's potential reflation could unlock significant value."
Valuations remain attractive compared to global peers, with the MSCI China Index trading at 12x forward P/E versus 15x for MSCI Asia-Pacific and 22x for the S&P 500.
Domestic forces also support the market: mutual funds continue buying, regulators are encouraging insurers to increase equity exposure, and state-backed funds intervene during volatility. The biggest potential catalyst lies in China's $23 trillion household savings pool, which could flow into equities as property markets weaken and fixed-income returns disappoint.
Amundi's Asia-Pacific CIO Florian Neto identified the critical question: "Are domestic investors regaining confidence in their own market? Further confirmation of this sentiment shift would sustain China's market ascent."