Wall Street is betting on a $2.4 trillion rise in Chinese stocks

China has won back global funds in a banner year for stocks, with investors expecting further gains on the country’s prosperity and resilience in artificial intelligence amid US tensions.

Global fund managers Amundi SA, BNP Paribas Asset Management, Fidelity International and Man Group expect Chinese stocks to continue to rise in 2026. JPMorgan Chase & Co. recently upgraded the market to overweight, while Allspring Global Investments’ Gary Tan says the asset class is becoming “indispensable” for foreign investors.

Investor perceptions of China have shifted from skepticism to recognition that the market can deliver unique value through its technological advancements. MSCI China has jumped about 30% this year, beating the S&P 500 by the most since 2017 and adding $2.4 trillion in value. With most of the inflows driven by passive funds, there is hope that the return of active money managers can drive the rest of the recovery.

“China has turned a corner, proved more resilient, and investors are now increasingly embracing an ‘investable’ China that offers diversification and innovation,” said George Efstathopoulos, portfolio manager at Fidelity International in Singapore. “I would be more inclined to buy Chinese dips right now.

Foreign long-term funds bought about $10 billion of shares in mainland China and Hong Kong through November this year, according to Morgan Stanley data, a reversal from outflows of $17 billion in 2024. The inflow was driven entirely by passive index-tracking investors, while active fund managers pulled out about $15 billion.

That’s partly because many activist investors — who rely on stock picks — are still unable to shake off years of anxiety over a slowing economy and Beijing’s sudden crackdown across private sectors. While authorities have adopted a more business-friendly stance this year, incentives have fallen short of investors’ expectations.

Some global fund managers said the bar for investing in China remains high and the U.S. market is also doing well, said Winnie Wu, head of Asia-Pacific equity strategy at Bank of America, who regularly meets with investors to gauge how they think about the market. But she said an improvement in earnings and a turnaround in China’s chronic deflation problems could turn things around. “The rest of China’s rally will be driven by global funds,” she said.

Slow bull

The bullish argument for Chinese stocks remains optimism about an emerging class of tech giants in chips, biopharma and robotics, along with hopes that the world’s second-largest economy may finally shake off deflationary pressures.

The buzz around artificial intelligence has fueled huge jumps in stocks such as Cambricon Technologies Corp . and Alibaba Group Holding Ltd. But sectors that have lagged behind the broader market this year, especially consumer goods, could also be due for a jump.

“The opportunity lies in those stocks that have been affected by the quest for stability in the economy rather than reflation,” said Andrew Swan, head of Asian ex-Japan equities at Man Group. “If reflation is the next phase for China, there’s a lot of opportunity in that.”

Investors also point out that Chinese stocks remain cheap relative to global stocks. The MSCI China index, which tracks mainland and Hong Kong-listed stocks, trades at 12 times forward earnings, compared with MSCI Asia’s 15 and the S&P 500’s 22.

Warning: investors should not expect the same level of returns next year. The base case of Nomura Holdings Inc. for MSCI China, it implies an increase of around 9% from current prices. Morgan Stanley also expects gains of around 6% from here.

Some argue that foreign investors are not necessary for Chinese stocks to grow. Local mutual funds are buying, helped by rising demand from insurers following regulatory pressure earlier this year. Beijing’s desire to create a slow bull market means state funds known as the National Team are also ready to buy stocks during tough times.

But the big hope comes from the country’s savings pile. Households have about $23 trillion in deposits. With the years-long real estate crisis still causing pain and fixed-income products offering paltry returns, many investors think this pile of cash will help push the market higher.

“Do we feel like we’re getting returns from mainland investors in their own market?” said Florian Neto, Head of Asia Investments at Amundi. “If we have confirmation of this improvement, the market will continue to fly.”