Analysts expect a slower but more sustained market uptrend for China equities, supported by the economy's resilience, a more market-friendly policy backdrop, attractive valuations, improving corporate earnings and the prospect of fresh capital inflows.

On Tuesday, China's benchmark Shanghai Composite Index closed down 0.11 percent at 4,091.89, and the Shenzhen Component Index gained 0.93 percent to 15,675.25, while the ChiNext — which tracks tech-heavy growth enterprises — finished the day 1.72 percent higher at 4,102.94.

Analysts at Guotai Haitong Securities said a new upward cycle has begun for Chinese shares and projected solid performance in the third quarter, with major indexes potentially reaching fresh highs.

In a report released on Monday, the brokerage said easing tensions in the Middle East and improving shipping conditions through the Strait of Hormuz should help moderate inflation expectations and reduce market uncertainty.

It also pointed to China's strong May export performance as evidence of improving earnings prospects for A-share listed companies in the first half, with the strength reflecting robust global demand linked to artificial intelligence investment and the energy transition — as well as supply constraints across key industrial chains.

Meanwhile, falling risk-free yields are creating sustained demand for wealth management products and strengthening support for domestic capital markets. Guotai Haitong analysts also said approvals for public funds and registrations of private funds have accelerated since June, potentially paving the way for meaningful new inflows after the upcoming Dragon Boat Festival holiday.

Foreign investment banks have become increasingly upbeat on Chinese equities.

Goldman Sachs said in a recent report that A-shares have outperformed both H-shares and some regional alternatives year-to-date in terms of absolute returns and risk ratios, highlighting their resilience to external shocks in a global context.

For the second time this year, Goldman Sachs raised its 12-month target for the CSI 300 Index from 5,300 to 5,500, largely on profit accruals. The New York-based investment bank maintained its overweight stance on China's onshore market, pointing to "its improving profit growth momentum, conducive macro and market liquidity conditions, still-underappreciated diversification benefits to international investors and compelling thematic exposures to hard tech AI proxies".

Goldman Sachs also lifted its 2026 earnings per share growth forecast for A shares to 20 percent from 16 percent, reflecting higher commodity prices, resilient demand for Chinese exports and a lower earnings base in 2025.

The investment bank described AI as a continuing "game changer", saying technological progress has accelerated at an incredible pace since China's DeepSeek released the large language model Deep-Seek-R1 early last year.

"Strong cyclical growth prospects, policymakers' pursuit of technological self-sufficiency, and China's competitive and comparative advantages in global high-tech manufacturing segments are the key anchors to our strategically positive view on the power, infrastructure, semiconductor and physical AI cohorts within the Chinese listed AI universe," Goldman Sachs said.

Nikhil Mehra, head of APAC Multi-Asset Strategies and Solutions at BlackRock, also expressed optimism about Chinese equities at BlackRock China's fifth-anniversary thematic forum on June 3.

Mehra said AI-related A-share sectors are trading at more attractive valuations than many global peers, making relevant individual stocks increasingly important components of diversified investment portfolios.

Fundamentals have also provided support for the market.

Lian Ping, chairman of the China Chief Economist Forum, said the nation's economy maintained solid momentum during the January-May period, supported by strong industrial activity and exports.

"Strong exports, new drivers of industrial growth and robust services consumption will serve as the main pillars supporting the Chinese economy," Lian said.

He expects second-quarter GDP growth to moderate from 5 percent in the first quarter to about 4.7-4.8 percent.

However, Lian said there remains considerable room for economic acceleration in the third and fourth quarters if policymakers introduce more targeted and forceful fiscal and monetary support for fixed-asset investment and domestic demand. Measures could include faster fiscal spending, greater support for emerging growth sectors and new re-lending facilities aimed at boosting consumption and private investment.

Such policies would help keep full-year economic growth within a 4.8-4.9 percent range and better ensure that the government's annual growth target is achieved, he said.

source: China Daily

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