Financial institutions including Goldman Sachs, Fidelity International, and Invesco express optimism regarding the future trajectory of China's A-share market. Since the beginning of February, the A-share index has been seesawing around the 4100-point mark. Questions remain about the duration of this volatile adjustment phase and the market's subsequent direction. Major Wall Street firms have recently issued their latest forecasts.
In a recent research report, Morgan Stanley highlighted a significant acceleration in foreign capital inflows and a recovery in retail investor sentiment. According to the firm's calculations, net inflows from US and European mutual funds into Chinese stocks reached $8.6 billion in January, marking the highest level since October 2024. The same month also saw new A-share account openings and net inflows from small orders (under RMB 40,000) hit new highs for 2025.
Another Wall Street giant, Goldman Sachs, also maintains a positive outlook on A-shares. Fan Xiang, Co-Head of Investment Banking for China at Goldman Sachs, believes that widespread recognition of "Chinese innovation" and strong interest in AI and robotics themes are expected to support robust market sentiment throughout 2026. Additionally, other foreign institutions like Fidelity International and Wellington Management are optimistic about the future performance of A-shares.
Foreign investors' research activity has remained vigorous this year. Wind data indicates that since the start of the year, over 100 A-share companies have been surveyed by foreign institutions, with AI-related firms continuing to be favored.
Following a strong start to 2026, where the A-share market broke through 4000 points and quickly ascended past 4100 points, the market entered a period of volatile adjustment from late January. Entering February, the Shanghai Composite Index fell below 4100 points, closing at 4075.92 points on February 5th with a daily decline of 0.64%. Despite this market volatility, the intensity of foreign research into A-share companies has not diminished.
Wind statistics show that since the beginning of the year, 163 A-share companies have received surveys from foreign institutions, including firms such as Huaming Equipment (002270.SZ) and Insta360 (688775.SH). In terms of the number of surveying institutions, Huaming Equipment (002270.SZ), Insta360 (688775.SH), and Inovance Technology (300124.SZ) were the top three companies attracting the most foreign interest this year, with 59, 58, and 53 foreign institutions surveying them, respectively. Overall, AI enterprises remain the most preferred research targets for foreign capital. During the statistical period, Opt (688686.SH), Orbbec (688322.SH), and Inovance Technology (300124.SZ) were each surveyed by foreign institutions over 40 times; all three are AI-related companies. Among them, Inovance Technology has been surveyed by 65 institutions year-to-date, with foreign institutions comprising over 80% (53 institutions), including UBS Asset Management, J.P. Morgan Asset Management, and Goldman Sachs Asset Management.
Research questions primarily focused on company performance, product competitiveness, dividend plans, and the impact of geopolitical policies. During a survey of Huaming Equipment, some institutions inquired about challenges the company faces in the US market. The company responded that development in the US market aligns with expectations, but further expansion faces challenges due to geopolitical factors. The company also noted that currently, Europe represents its largest overseas market by sales scale, followed by Asia, primarily Southeast Asia.
Regarding the overall picture of foreign inflows since the start of the year, in a February 3rd research report, Morgan Stanley analysts, including Wang Ying, stated that foreign capital inflows accelerated significantly in January, alongside a recovery in retail sentiment. Simultaneously, the "national team" conducted sales to manage market volatility. According to Morgan Stanley's calculations, active funds from the US and Europe saw net inflows in January for the first time in nearly three years, amounting to approximately $1.2 billion. Passive fund inflows accelerated, reaching $7.4 billion. However, Morgan Stanley also noted that global funds overall maintain an underweight position in Chinese stocks. The firm's data shows that as of the end of last year, global fund allocations to Chinese equities remained stable, underweight by 1.3 percentage points. Emerging market and Asia ex-Japan funds slightly reduced their active weighting towards Chinese stocks, underweight by 4.5 and 0.6 percentage points, respectively. Morgan Stanley also observed that selling pressure from the "national team," primarily through ETF sales since mid-January, might be weakening. The firm concurrently noted a significant increase in retail participation in the A-share market. Data shows new account openings on the Shanghai Stock Exchange surged to 4.9 million in January, exceeding the peak of 3.1 million seen in March 2025. The institution believes that "as selling pressure from the 'national team' potentially nears its end, coupled with continued inflows from foreign and retail capital, the market's liquidity environment could see positive changes."
Looking ahead for the A-share market, institutions like Goldman Sachs, Fidelity International, and Invesco express optimism. Fan Xiang observed that the drivers of market sentiment at the beginning of this year have shifted compared to the same period last year. "If the start of 2025 was marked by the 'DeepSeek moment,' investor conviction in 'Chinese innovation' has been reinforced again since 2026 began," he said. He believes widespread recognition of "Chinese innovation" and strong interest in AI and robotics themes are expected to support robust market sentiment throughout 2026.
Fidelity International believes the resilience of the Chinese market is improving, and its valuation is attractive compared to global peer markets. Stuart Rumble, Investment Director for Asia Pacific at Fidelity International, stated that the Chinese market is regaining vitality, with improving capital momentum for A-shares and offshore Chinese stocks driven by policies supporting consumption, stabilizing real estate, and structural reforms. "Weak real estate recovery and geopolitical uncertainties remain risks, but as policies become more stable and corporate earnings visibility improves, it is expected to attract more domestic capital and international investors to allocate," he said. Regarding valuation, Rumble mentioned that over the past 12 to 18 months, Chinese stock valuations were at historical lows. Although short-term volatility persists, mid-term confidence is gradually recovering, supported by targeted fiscal stimulus, monetary easing, and industrial upgrade policies. While market valuations have recovered somewhat, they remain below historical averages and are attractive compared to global peers.
Invesco also maintains an optimistic view on A-shares. Lei Ma, Chief Investment Officer for Mainland China and Hong Kong at Invesco, stated that continuously improving fundamentals and long-term growth drivers are expected to create a more sustainable structural growth cycle for A-shares. On fundamentals, he noted that corporate earnings are sending clear recovery signals, with earnings per share expected to rebound further. Improved operational efficiency and better leverage are driving net profit margins higher, further strengthening the foundation for sustained corporate profitability. Regarding valuation, Ma Lei said that despite the strong rebound in Chinese stocks in 2025, valuations remain attractive. Significant southbound capital inflows into the Hong Kong market reflect growing interest from mainland Chinese investors in offshore Chinese assets, a trend expected to continue through 2026. He identifies three key investment opportunities in the Chinese market for 2026: industrial upgrading, advancements in AI applications, and consumption market upgrades.