<div id="readability-page-1">As 2025 draws to a close, Wall Street’s love affair with Chinese equities is in full swing. While the relationship between global investors and China has been a rocky one, market sentiment is now about varying degrees of bullishness.\nIn a panel discussion moderated by JPMorgan at the annual meeting of the Emerging Markets Trading Association earlier this month, some of the speakers said China’s stock market had undergone a shift from “uninvestable” to “irresistible”, especially in the all-important technology sector.\nThis is a far cry from the extreme bearishness from February 2021 to January 2024, which caused the MSCI China index – which tracks Chinese companies listed at home and abroad – and the CSI 300 index of Shanghai- and Shenzhen-listed shares to plunge 58 and 45 per cent respectively.\nA series of widely circulated research reports by JPMorgan in March 2022 that described China’s internet sector as “uninvestable” had an outsize impact on sentiment. Although the word caused a furore, with the bank’s editorial staff removing it from most of the published reports, the label stuck.\nPart of the problem was the lack of a positive catalyst for a recovery in Chinese asset prices. The combination of a deep cyclical and structural downturn, regulatory uncertainty, insufficient and ineffective policy stimulus and the absence of a captivating theme or trend for investors to latch on to exacerbated the deterioration in sentiment.\nHowever, global fund managers were too bearish on China in the first place. Most paid insufficient attention to the economic and geopolitical consequences of Beijing’s prioritisation of technological self-reliance. As Morgan Stanley noted in a June report, foreign investors “spent much less time covering China since 2021/2022, which had resulted in limited knowledge of the latest breakthrough on the tech and smart manufacturing fronts”.\n\n\nMoreover, Donald Trump’s return to the White House proved a boon for China’s markets. Trump’s assault on the global trading system pricked the “US exceptionalism” bubble, making investors more willing to rebalance their portfolios away from the US. This amplified the impact of the “DeepSeek moment” at a time when the craze for artificial intelligence was at its peak.\nAlthough Beijing’s more forceful efforts to stabilise the economy are still insufficient, particularly given the severity of the residential property market crisis, fears about Japanese-style deflation and stagnation have receded.\nThis is mainly because the market narrative around China has changed dramatically over the past year. A recent Morgan Stanley report argues there has been a shift in the perception of China from a deflationary and economic slowdown story, “towards one of an innovation and hard-core technology breakthrough”.\nIt is this tech-driven improvement in sentiment, amplified by China’s weaponisation of supply chains, that has been one of the most striking developments in markets this year. The MSCI China index is up 29.1 per cent in the year to date, causing a sharp re-rating of Chinese stocks. In fact, the country’s equities, currency and government bonds are on track to deliver positive returns for the first time since 2020, data from Bloomberg shows.\n\nIn a report on November 20, HSBC called China a paradox. “On the one hand, there’s a thriving modern retail and technology sector with global brands and successes. On the other, 80-85 per cent of the economy is grappling with issues like economic imbalances, debt limits, and unemployment,” it said.\nAs Wall Street belatedly recognises China’s tech prowess, long-standing concerns about the country’s economy are no longer preventing analysts from taking a bullish view on Chinese equities.\nTherein lies the problem. Just because global fund managers were too bearish on China does not mean their concerns were misplaced. Although the stock market is not the economy, there is a limit to how much more asset prices can diverge from economic fundamentals.\nWhile a stabilisation in corporate earnings in China is under way, the contribution of earnings growth to stock market returns is low, with higher valuations accounting for the overwhelming bulk of total returns this year.\n\nAccording to Societe Generale, a sharp divide in Asian equity markets has opened up between India and Taiwan, where returns are driven by strong earnings growth, and other leading markets – in particular mainland China and Hong Kong – where higher valuations are more important.\nThis is partly why bullish predictions for earnings growth in China should be treated with caution. Morgan Stanley believes the consensus forecast of 15 per cent growth in earnings for the MSCI China index next year is too optimistic given the persistent deflationary environment and weak discretionary spending.\nSince early October, sentiment towards Chinese stocks has deteriorated, with the MSCI China index down about 9 per cent. Although various factors are at play, weaker-than-expected economic data is the main culprit. Retail sales last month rose at the slowest monthly pace on record outside the pandemic, while investment is on track to record the first contraction since 1998.\nThat leading Wall Street banks remain bullish on Chinese stocks despite the deeper downturn shows how the country’s success in hi-tech industries continues to act as a powerful counterweight to economic and policy-related vulnerabilities.\nHowever, the stabilisation of China’s economy is becoming ever more dependent on export growth. Mexico’s decision earlier this month to impose new tariffs on imports from China and other Asian economies is a foretaste of things to come.\n“What Beijing views as competitiveness increasingly looks abroad like a recipe for deindustrialisation, a China shock 2.0,” said Alpine Macro.\nThis year’s blistering rally in Chinese equities is a reminder that being too bearish on a tech superpower is costly. Yet it also shows that economic fundamentals matter. China was always investible, but investors need to assess and price risks more carefully.\n</div>

MSCI

<p>As 2025 ends, Wall Street's interest in Chinese equities grows, shifting from 'uninvestable' to 'irresistible', especially in tech. Despite past bearishness, recent reports highlight China's tech breakthroughs and changing market narratives. The MSCI China index rose 29.1% this year, but concerns about economic fundamentals persist. Analysts urge caution on bullish earnings forecasts amid weak economic data.</p>

Has China’s stock market gone from ‘uninvestable’ to ‘irresistible’?