China’s equity market poised for 2026 rally

Binaya Dahal

Editorial Intern, Financial Newswire

10 December 2025

Corporate resilience, the return of moderate inflation, and favourable fiscal policy have laid the foundation for a sustained rally of China’s equity market next year, Fidelity International’s portfolio manager George Efstathopoulos says.

After years of property downturn, regulatory tightening, and geopolitical frictions, many investors turned global capital away from Chinese equities toward perceived safer assets, but Efstathopoulos said this year’s market performance indicates a meaningful shift.

“China’s equity market is in a bull phase that foreign investors have yet to fully appreciate,” he said.

“For those willing to look beyond the lingering skepticism, the risk-reward balance has shifted decisively. In my view, dips remain opportunities to buy, not to sell.

“Earnings stabilised, corporate reforms accelerated, and confidence is slowly returning. Flows typically follow stock market performance and earnings, and China is now delivering both.”

He added that the country’s resilience this year has been the biggest surprise.

“Growth has held up in the face of tariffs and soft global demand, and the government has managed to navigate its relationship with the US more deftly than most expected,” Efstathopoulos said.

The potential deflationary episode similar to Japan had been another major concern for investors but Efstathopoulos claims the new data shows encouraging signs.

“Core inflation has been rising since May, while service-sector inflation – from recreation to healthcare and transport – is broadening,” he said.

“Sequential producer price inflation has improved for three consecutive months, reflecting early success in addressing overcapacity and anti-involution can help earnings broaden beyond tech sector.

“A convincing exit from deflationary concerns could be the catalyst for further re-rating.”

Furthermore, Efstathopoulos said the undergoing structural adjustment of the property market may make equities the credible alternative which will have significant effect in a country with one of the highest household savings rates globally.

“Historically, property was the preferred savings channel. If households begin to deploy even a fraction of their deposits into the equity market, the implications for valuations could be profound,” he said.

“Opportunities span both onshore and offshore markets. Offshore equities, with their heavier weighting in technology and AI, are benefiting from the innovation theme and China’s relative strength in energy infrastructure – a key advantage in an electrifying global economy, while valuations remain much lower than global peers.

“Onshore markets, which are more exposed to domestic consumption, could be the main beneficiaries if fiscal stimulus surprises to the upside.”