Chinese equities are expected to maintain their appeal for long-term investors despite ongoing volatility in global markets, driven by unique technology opportunities and efforts to enhance shareholder returns, according to market analysts.
The A-share market has experienced fluctuations in response to rising U.S. long-term Treasury yields, persistent inflation concerns, and geopolitical tensions, which have collectively placed pressure on global stock markets. Domestically, apprehensions about liquidity strains caused by a wave of initial public offerings from technology firms—including chipmaker CXMT and robotics company Unitree Robotics—have also contributed to market uncertainty.
On Tuesday, the Shanghai Composite Index edged up 0.19 percent to close at 3,889.44 points, while the technology-focused ChiNext Index declined 1 percent to 3,397.52 points. Despite this mixed performance, several investment firms remain optimistic about China’s equity prospects over the medium term.
James Wang, head of China strategy at UBS Investment Bank Research, highlighted a marked turnaround in foreign investment flows, noting that northbound inflows through the Stock Connect programs reached a record $33 billion in the second quarter. This represents a significant reversal from the $1.8 billion net outflow seen in the previous quarter, with buying activity concentrated in the industrials and information technology sectors.
Zhu Liang, chief investment officer at AllianceBernstein in China, pointed to opportunities in both growth sectors and reforms aimed at bolstering corporate governance and shareholder returns. In the artificial intelligence space, Zhu noted that Chinese firms engaged in developing indigenous AI technologies and cost-effective large language models provide promising investment avenues. However, Zhu cautioned against overconcentration in AI-related stocks, highlighting the valuation disparities within the A-share market and suggesting exposure to sectors like city commercial banks to mitigate volatility.
Regulatory improvements have contributed to a shift from net equity financing toward net share buybacks among Chinese listed companies, supporting overall market performance. At a July 30 meeting of the Communist Party of China’s Political Bureau, officials emphasized the need to deepen capital market reforms to enhance resilience and investor confidence.
Kelvin Tay, chief investment officer for Asia at Pictet Wealth Management, acknowledged that the surge in offerings from emerging technology firms might temporarily disrupt supply-demand balance and weigh on market performance in the short term. Still, he affirmed the fundamental strengths of these newly listed companies, characterized by solid profitability and positive net cash flows, reinforcing his positive outlook over the next five to seven years.
Experts also underscored the importance of fostering a fair and equitable market environment. Liu Jipeng, professor at China University of Political Science and Law, stressed that regulatory efforts should focus on fairness, particularly by better overseeing quantitative trading practices that may disadvantage average investors. Tian Xuan, dean of Peking University’s Guanghua School of Management, advocated for further refinements to policies on refinancing and mergers and acquisitions to improve the quality of listed companies from their inception.
Overall, while short-term fluctuations are expected amid both global and domestic dynamics, China’s equities market continues to present opportunities supported by technological innovation and regulatory reforms.