EconoScope: Global Capital is Betting Big on China

In a notable change, global financial institutions are regaining faith in Chinese assets. Major banks and investors are increasingly optimistic about the performance of China's stock market.

For instance, Deutsche Bank believes the valuation gap for Chinese equities will soon close. Similarly, Morgan Stanley predicts that the MSCI China Index might rise to 77 by the end of 2025. Additionally, Bank of America is recommending investors to take long positions on Chinese stocks.

This positive outlook is supported by actual data. Reports from Goldman Sachs indicate that global hedge funds have been actively purchasing Chinese stocks for most of the year.

In just the past month, these hedge funds contributed to an impressive $1.3 trillion increase in the total market capitalization of both onshore and offshore Chinese markets. This clearly shows that investors are reassessing the real value of Chinese assets.

Reasons Behind the Renewed Interest

Several key factors are driving this resurgence of investor interest in China.

Tian Lihui, a finance professor at Nankai University, points to China’s impressive technological advancements, economic strength, supportive government policies, and changing global dynamics as contributing factors.

A shining example of China's technological innovation is DeepSeek, an AI development that has significantly impacted the artificial intelligence field. This demonstrates China's potential to lead in technology, similar to how the "Magnificent Seven" tech giants dominated U.S. markets in 2024.

Yet, China’s innovation extends well beyond artificial intelligence. Innovations in areas like brain-computer interfaces, humanoid robotics, and autonomous vehicles are regularly emerging, making investors more confident in the Chinese market.

Economic Strength Fuels Outlook

Another crucial factor behind the renewed investor enthusiasm is China’s steady economic performance amidst global uncertainty. In 2024, China’s GDP surpassed 130 trillion yuan (about $18 trillion) for the first time, with a growth rate of 5% that places it among the fastest-growing major economies.

However, it's not just the size of the growth that is important. China’s focus on advanced manufacturing and improving high-quality productive capabilities is accelerating, while traditional industries are also being revitalized.

According to Peter Milliken, the head of company research for APAC at Deutsche Bank, China's foothold in high-value sectors and supply chains continues to expand at an extraordinary rate.

Additionally, China's consumer market remains a significant force. The recent Chinese New Year holiday saw record-breaking tourism and box office revenues, underscoring that domestic consumption is vital for economic vitality.

Government Support and Capital Flows

China's proactive government measures have also contributed significantly to stabilizing and revitalizing its financial markets.

Since September 2024, the Chinese government has implemented various strategic policies, including swap facilities for securities, funds, and insurance companies, as well as stock repurchase refinancing tools. These measures have boosted market confidence both within China and globally.

The effects are evident: there is a clear shift of global capital towards China.

This trend is expected to have lasting implications, strengthening China's presence in global markets. Increased international investment in China's capital markets will enhance the integration of A-shares into global markets, while rising investor confidence in Chinese companies will stimulate economic transformation and industrial upgrades.

With sustained economic growth, rapid technological advancements, and a favorable investment climate, China’s capital markets are well-positioned for long-term development. As global investors look to diversify their portfolios, investing in China may evolve from being simply an option to becoming a strategic decision for the future.

China, Investors, Economy