On Oct. 28, the Shanghai Stock Exchange (SSE) Composite Index broke through 4000 points for the first time in ten years. The rally was led by tech and new energy stocks, with battery giant Contemporary Amperex Technology (CATL), electric vehicle maker BYD, and AI chip developer Cambricon Technologies hitting record highs. As a result, the market capitalization of the high-tech sector surpassed that of the financial sector for the first time, making it the largest industry in the A-share market.
Are Chinese equities entering a new long-term upswing as foreign capital returns, U.S.–China tensions ease, and the AI boom accelerates? Analysts highlight three key observations:
Asian Stocks Attract Capital, Favoring China
DBS Bank notes that valuations of Asian stock markets excluding Japan remain about 30 percent below the global average and are likely to benefit from capital reallocation. This year, the stock markets of South Korea, China, and Hong Kong have led regional gains, mainly because they are “too cheap.”
Wang Guo-chen, assistant research fellow at the Chung-hua Institution for Economic Research (CIER), explains: “Investor confidence in the U.S. dollar and Treasury bonds has been shaken. Funds are seeking safe havens, and de-dollarization is driving capital flows into Asia.”
A strong supporting indicator is that China’s current forward price-to-earnings ratio stands at only 14.7, well below the U.S.’s 25 and the emerging-market average of 15.
AI and U.S.–China Détente Rekindle Foreign Confidence
The AI boom has brought China back into focus for foreign investors. Since the rise of Chinese AI firms such as DeepSeek, Hong Kong–listed Tencent and Alibaba have also launched their own large language models.
Kevin Sneader, president of Asia Pacific ex-Japan at Goldman Sachs, notes: “Foreign interest in Chinese stocks is at its highest level since 2021.”
After U.S. and Chinese leaders met in Busan at the end of October, the U.S. lowered some tariffs on Chinese goods, while China suspended planned tariff hikes. This mutual goodwill has helped stabilize market expectations.
Hsieh Tien-ling, a fund manager at Capital Investment Trust Corporation, points out that it remains difficult to separate the AI industry from the intertwined U.S.–China supply chain. “Even Nvidia CEO Jensen Huang has said that a complete decoupling is impossible.”
She adds that U.S. rideshare companies Uber and Lyft still use autonomous driving technologies developed by Chinese firms — a sign of China’s continuing global competitiveness.
Sneader, however, cautions that China must demonstrate a stable growth trajectory and policy consistency to attract more returning capital.
Economic Recovery Still Fragile
China’s 15th Five-Year Plan reaffirms economic development as its core focus. Hsieh observes that compared with the “common prosperity” period, companies have returned to focusing on real business operations. “Before, executives spent time studying policy documents; now they’re busy taking orders.”
However, Lin Che-yu, fund manager at PGIM Prudential Financial, warns that the manufacturing PMI fell to 49 in October, remaining below the boom–bust line for seven consecutive months — signaling that the recovery remains fragile. Exports and the property market are still under strain, suggesting short-term market volatility will persist.
“It still takes policy leadership to break through these bottlenecks,” says Wang of CIER. Overall, analysts believe that Chinese and Hong Kong stocks are currently supported mainly by liquidity and valuation, with fundamentals yet to show a full recovery.
By Lisa Lin
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2025-11-11