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The China Briefing

It’s all about tech (again)

China equities have started 2026 in buoyant mood. With relatively low correlations to other global markets, China equities are increasingly relevant for investors seeking diversification amid elevated risk around US-dollar assets.

Please find below our latest thoughts on China:

  • China equities have started the new year much as they ended 2025, in buoyant mood. Market volumes have been high and technology-related stocks have paced the gains.
  • While semiconductor stocks have been notably strong, benefiting from China’s ongoing push for greater self-sufficiency, the rally has also extended to a range of areas linked to AI.
  • This includes rising power demand from AI activity, increased requirements for electronic components like printed circuit boards (PCBs), expanding datacentre infrastructure, and advancements in autonomous driving technologies. Space technology has also been in focus, with certain Chinese companies likely to be in the SpaceX supply chain.
  • The thematic nature of the market and the high volumes point to growing participation from China’s sizeable retail investor base.
  • The background is that having been in pragmatic savings mode for several years as a result of the turbulence of Covid and the weaker macro situation, there are signs of a more risk-on approach.
Chart 1: MSCI China A Onshore Index – change in sector weight over 10 years

Source: IDS GmbH, Allianz Global Investors. Data as of end December 2025 and December 2016. *MSCI Real Estate Sector Classification was created in 2016.

  • An estimated RMB 185 trillion (USD 26 trillion) of 3-year term deposits are maturing from 2025-2027. Yields have roughly halved since these funds were originally deposited.1
  • Given the paucity of domestic investment options – mainly fixed income, gold, real estate and wealth management products – equities now seem relatively more attractive than before, especially in the much lower interest rate environment. 10-year Chinese government bonds are yielding less than 2%.2
  • Indeed, the recovery of retail investor enthusiasm has prompted the first sentiment-cooling signals from the government.
  • The margin deposit ratio for newly opened stock accounts was recently raised from 80% to 100%, in an attempt to prevent excessive speculative activity. There have also been outflows from certain domestic ETFs, likely withdrawals by state-backed funds.
  • These actions have been very targeted and measured, in our view, reinforcing the well-flagged intentions to avoid a speculative boom-bust cycle as was experienced in 2015 and instead to engineer a healthier and more sustainable “slow bull” for the China A market.
  • Since this action was taken, daily trade volumes have come down a little and the overall China A market has generally moved sideways. In contrast, the China H market has started to rebound after a period of relative weakness.
  • As well as the significantly improved domestic liquidity environment compared to several years ago, we also see other fundamental factors supporting China equities.
  • One of these is the reduced impact of the weaker housing market. After four years of contraction, the share of the property sector has fallen from about 18% GDP to 9% in 2025.3 
Chart 2: Historical correlations between major equity markets

Source: Bloomberg, Allianz Global Investors, as at 31 December 2025. Correlation data is calculated based on historical return of respective MSCI indices for the past 10 years, using weekly USD returns.

  • There appears to be no quick fix for the property sector which, in our view, is likely to continue declining in 2026, but its drag on GDP should lessen.
  • And while China’s rising tech sector does not fully compensate in terms of macro growth, it has a proportionately greater impact on equity markets. The weighting of the technology sector in the MSCI China A index has risen from around 10% a decade ago to close to 25% now, for example.4 
  • Another factor supporting improved China equity valuations has been reduced geopolitical risk. President Trump is expected to make a visit to China in April, and there will be incentives on both sides to paint this as a “win-win”.
  • More broadly, global geopolitical events have been contributing to a higher risk premium on US dollar assets.
  • For investors considering a reduction in US exposure, it is interesting to note the relatively lower correlations that China equities, especially China A-shares, have with other global equities.5 It is hard to imagine a time when the benefits of diversification have been greater. 

1 Source: JPM Morgan, 16 Jan 2026 
2 Source: Bloomberg, 28 Jan 2026
3 Source: BNP Paribas, 9 Jan 2026
4 Source: IDS GmbH, 31 Dec 2025 
5 Source: Bloomberg, 31 Dec 2025

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