China - Market Strategy 06 (Jul 24 - Dec 26)

[winston]

China’s rich return to risky ‘snowball’ derivatives for yields

The stock market has since rallied further, sending many snowballs and DCNs through the knock-out levels

Snowballs grant investors bond-like coupons as long as the stock index they reference stays within a predetermined range – typically between 75 per cent and 105 per cent of the starting level.

A “knock-in” occurs if the lower end of the range is breached, handing the investor a potential loss equivalent to the drop.

When the market gains to the “knock-out” level, the investor gets paid the coupon for the holding period as the contract is terminated.

In April, CICC estimated the total market for snowballs and dynamic notes was about 100 billion yuan.

There’s a growing conviction among investors that any correction in the next year or two will not be steep enough to hit the downside cushion of the products, especially given the government’s commitment to support the market.

Source: Business Times

https://www.businesstimes.com.sg/compan ... ves-yields

[behappyalways]

Chinese Stocks Crash After Beijing Seeks To Contain Bubble: What Happens Next
https://www.zerohedge.com/markets/chine ... ppens-next

[winston]

China’s margin curbs threaten rally in stock market favourites

Investors chasing fast-moving trends face more uncertainty, as margin access can disappear quickly

The rule, in place since 2016, bars investors from using stocks with a price-to-earnings (PE) ratio above 300 as collateral to borrow funds for buying shares, either of the same company or others.

Thanks to a rally fuelled by enthusiasm for artificial intelligence (AI), the number of mainland-listed firms that now exceed this PE threshold has surged about 30 per cent on-year to 236.

Source: Business Times

https://www.businesstimes.com.sg/compan ... favourites

[winston]

CICC: A-shr Valuation Remains in Reasonable Range; Significance of Fundamentals Rising; Focus on 3 Themes

CICC’s report forecast that the uptrend of mainland A-shares since 2024's “9.24” is likely to persist.

Looking ahead to 2026, as Sino-US relations enter a new phase:-
1. The logic of reconstructing the international monetary order, is further strengthened;
2. The AI revolution enters a critical application period and
3. China's innovative industries achieve performance realization.

The significance of A-share fundamentals will continue to increase in 2026, whereas the movements of global and domestic resident funds, are also factors that cannot be overlooked.

The broker suggested focusing on three main themes:
(1) prosperous growth,
(2) breakthrough in external demand and
(3) cyclical reversal.

Chinese stocks fared excellently in the global market in 2025, with the Shanghai Composite Index setting a ten-year high, the broker said.

Previously, the broker had expressed its view that the bottom period was over; risk/ appetite was stronger than that in 2024; and prosperous investment returned to focus in terms of allocation.

The overall valuation of A-shares is still in a reasonable range and the capital side is expected to remain active.

Currently, global funds are still under-allocated to China, focusing on the power of international fund allocation rebalancing.

Domestic resident fund allocation demand has been activated by the profit effect.

From the end of this year to the first half of next year, the resonance of the Sino-foreign liquidity easing cycle and the high prosperity of growth industries are anticipated to bolster market upswing.

Source: AASTOCKS Financial News

http://www.aastocks.com/en/stocks/news/ ... -news/AAFN

[winston]

So bad it’s good: Why Chinese equities could shine in 2026

Conditions like slowing growth and subdued consumption, are still viewed as catalysts that could lift equities in 2026

by John Woods

Persistent low inflation is expected to drive bond yields even lower, leaving domestic savers with few alternatives for meaningful returns beyond stocks.

At the same time, a softening US dollar – already down in 2025 and forecast by Lombard Odier to weaken even further in 2026 – could prompt USD-based investors to seek and explore growth and earnings in undervalued emerging markets.

AAA-rated renminbi (RMB) corporate bonds now yield around 1.7 per cent while the CSI 300 Index is forecast in 2026 to offer investors a dividend yield of around 2.7 per cent, a delta wider even than the global financial crisis or Covid-19 periods.

The bond-to-equity rotation is also underpinned by a structural reallocation of household wealth. Chinese households are estimated to control some US$41 trillion in financial assets as of 2022, yet equity allocation remains only around 12 per cent – compared with 40 per cent in US households.

Analysts suggest even a modest 5 to 10 per cent increase in equity weighting could release an estimated US$2 trillion to 4 trillion in incremental buying power over the coming years.

Beijing’s stranglehold on the production and supply of rare earths suggests the temporary geopolitical reprieve with the US will likely continue.

The late-2025 US-China trade truce has lowered tariffs and paused further escalation until late 2026.

Domestic headwinds including high youth unemployment, and unfavourable demographics will continue to constrain nominal growth. Also, policy delivery could fall short if local-government debt concerns lead to restrained stimulus.

The base case for China equities into 2026 is constructive, facilitated by structural reallocation, sustained policy backing, and potential foreign inflows amid dollar weakness.

China stocks are responsible for fully 28 per cent of the MSCI Emerging Market Index.

Source: Business Times

https://www.businesstimes.com.sg/wealth ... shine-2026

[winston]

From hope to hard numbers: why China stocks will need profits to boost the bull run

by Zhang Shidong

After a year-long rally in Chinese stocks powered by multiple expansion as confidence recovered, investors now say that the bull run could find fresh legs in 2026 – this time underpinned by stronger earnings growth.

Supportive macro policy, the push for technological self-reliance and Beijing’s effort to retire obsolete capacity in parts of the green industry, are expected to lift margins and profits.

That would make earnings, not valuation, the key driver for equities in the year ahead.

Source: SCMP

https://www.scmp.com/business/china-bus ... pe=section

[behappyalways]

Chinese stocks slide as margin financing ratio raised to 100%
https://www.theedgesingapore.com/news/c ... raised-100

[winston]

China raises margin requirements for stock financing trades

The minimum margin ratio for investors buying shares through margin financing will be increased to 100 percent from 80 percent.

The change will take effect on January 19, 2026, and will apply only to newly opened margin financing contracts. Existing contracts and any extensions will continue to follow the previous rules, the exchanges said.

China cut the margin requirement from 100 percent to 80 percent in August 2023 to support market activity.

Source: The Standard

https://www.thestandard.com.hk/market/article/321576/

[winston]

China national team’s US$68 billion exit alters stock strategies

Trading activity onshore has eased from a frenzied pace of nearly four trillion yuan earlier this month

Central Huijin sold US$67.5 billion across 14 ETFs in just six sessions to Thursday (Jan 22).

The ETF outflows have coincided with regulators’ efforts to tighten rules on margin financing, signalling unease over rapid gains in sectors such as rockets and AI applications, where profitability is unclear.

Central Huijin started aggressively investing in China’s ETFs in 2023, amassing US$180 billion in such assets by the end of August 2025.

After record outflows from a fund tracking the Star 50 Index, they estimate 5 per cent of Central Huijin’s firepower is left for that product.

Trading activity onshore has eased from a frenzied pace of nearly four trillion yuan (S$729 billion) earlier this month.

Source: Bloomberg

https://www.businesstimes.com.sg/compan ... strategies

[winston]

<Research>Daiwa: Mkt Preference Shifts from AI to Cyclical Industries; Mkt Gradually Turns to Stimulus-Related Sectors After LNY

Mutual funds’ interests in the Hong Kong market cooled slightly in 4Q25, with strong capital inflows into non-ferrous metals and financial sectors, Daiwa said in its China market strategy report.

The broker said that equity and hybrid mutual funds diversified their holdings by the end of 2025.

The proportion of their shareholding value in top-50 stocks to total stock investment decreased from 25.8% to 25.1%.

Although the proportion of the top 10 stocks increased from 12.4% to 12.9%, the broker attributed this to stock price upsurge rather than funds’ stock accumulation.

As a matter of fact, fund managers reduced holdings in some “most popular” names over the past three months, such as CATL (300750.SZ), ZHONGJI INNOLIGHT (300308.SZ) and LUXSHARE PRECISION (002475.SZ).

In Daiwa’s past three quarterly reviews, there was an increase in funds’ interests in Hong Kong stocks, but this trend briefly reversed in recent months, Daiwa noted.

The proportion of Hong Kong stocks in fund heavy-weight stocks dropped from a peak of 17.8% to 16.3%.

Among the top ten heavy-weight stocks in funds, TENCENT (00700.HK) and BABA-W (09988.HK) ranked 6th and 9th respectively in 4Q25, down from 5th and 6th in 3Q25.

Propelled by global metal market trends, Chinese mutual funds drastically increased their holdings in non-ferrous metal stocks in 4Q25 (up 1.7 ppts QoQ), mainly purchasing YNALCO (000807.SZ), ZANGGE MINING (000408.SZ) and SINOMINE RESOURCE (002738.SZ) .

As market preference shifts from AI to cyclical industries, fund managers also turned positive about banks (+0.7 ppts) and diversified financials (+0.8 ppts), with strong capital inflows into INDUSTRIAL BANK (601166.SH) and ICBC (601398.SH) during the period.

For the 1Q26 outlook, as seasonal profit-taking concludes, mutual funds will become more risk-tolerant in 1Q26, Daiwa said.

AI (such as application and memory) and metals remain key investment themes in the short term, but the broker considered investor interest may gradually shift to stimulus-related sectors after the Lunar New Year (LNY) holiday.

Source: AASTOCKS Financial News

http://www.aastocks.com/en/stocks/news/ ... -news/AAFN