Analysis of Driving Factors and Trends of Foreign Institutional Investors Increasing Holdings of Chinese Assets in 2026

Based on the latest data and research materials, I will systematically analyze the driving factors and sustainability of foreign institutional investors increasing their holdings of Chinese assets in 2026.

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In the first 10 months of 2025, overseas capital inflows into China’s stock market reached

, a compared to the full year of 2024[1]. As of December 20, 2025, ETFs investing in Chinese assets globally have accumulated in net capital inflows, with approximately $78.6 billion into onshore ETFs and $4.5 billion into offshore ETFs[2]. Leading international institutions such as JPMorgan Chase, Morgan Stanley, Goldman Sachs, and UBS have intensively increased their holdings of companies including CATL, Ganfeng Lithium, and Innovent Biologics in Hong Kong stocks, covering sectors such as new energy, biomedicine, and communication services[3].

In terms of market performance, both A-shares and Hong Kong stocks recorded significant gains in 2025, achieving positive returns for two consecutive years. Goldman Sachs predicts that China’s stock market could achieve a

by the end of 2027[2].

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The substantial improvement in corporate earnings has become the

supporting the upward movement of the market:

Forecasting Institution	2026 Earnings Forecast	2027 Earnings Forecast
Goldman Sachs	+14%	+12%
UBS	+8% (All A-shares)	—
Huaan Securities	Quarterly earnings hit new highs since 2020	—

JPMorgan Chase’s research shows that the proportion of companies in the MSCI China Index with upward earnings revisions has risen by approximately

since May 2025, marking the best performance since 2020[2]. The earnings growth rates of the ChiNext Index and STAR Market are expected to reach and respectively in the first half of 2026[4].

The advancement of “anti-involution” policies is producing significant effects: enterprises are appropriately reducing capital expenditures, increasing R&D investment, and improving gross profit margins and net profits through healthy competition, which will ultimately achieve an overall upgrade in the quality of listed companies[2].

Current valuations of Chinese assets still have obvious advantages compared to major global markets:

Index	PE (TTM)	Historical Quantile
Shanghai Composite Index	16.33x	Near median
ChiNext Index	39.82x	Near median
S&P 500	29.38x	Significantly above median
Nasdaq	42.14x	Significantly above median

Goldman Sachs pointed out that the current valuation of China’s stock market has a

compared to global peers, with an estimated valuation recovery potential of about 10%[2][5]. JPMorgan Chase upgraded its rating on the Chinese market to “Overweight”, citing mainly that valuations are still in a reasonable range and international investors have relatively light positions[2].

is a key external driving factor:

• The world has entered an interest rate cut cycle, and the weakening U.S. dollar has driven capital rebalancing toward cost-effective emerging markets
• The weak U.S. dollar cycle will boost earnings, valuations, and liquidity of emerging market equities including A-shares[4]
• As a “value depression”, Chinese assets have become an important target for international capital to diversify U.S. dollar risks

With the surge in popularity of DeepSeek in 2025 as a turning point, the narrative of Chinese tech stocks has been rewritten, prompting global capital to reposition the Chinese market[2]:

• Chinese tech companies generate more revenue from the service sector rather than commodity exports, and are less affected by trade policies
• Relying on a huge domestic market, a reserve of high-quality engineering and technical talents, and the determination to develop its own technological ecosystem
• Sectors such as AI, intelligent driving, semiconductors, and innovative drugs have entered the performance realization period, forming new growth poles

• 15th Five-Year Plan
  clarifies the development direction, enhancing policy certainty
• Market Value Management Reform
  continues to optimize the market ecosystem
• State Administration of Financial Regulation
  lowered the risk factor for insurance companies’ stock investments, reducing the capital occupation of insurance funds invested in stocks
• Institutional Opening-Up
  provides a more stable and transparent business environment for foreign capital

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Sector	Core Logic	Foreign Investor Attention
Tech Growth	AI, semiconductors, high-end manufacturing, innovative drugs	Highest ($9.5 billion inflows)[2]
High-Dividend Blue Chips	Banks, energy, etc. with stable dividends	Relatively high
Enterprises with Overseas Advantages	Leading manufacturing enterprises with global competitiveness	Gradually increasing

• Passive Capital
  : Large-scale inflows (ETFs have become the main force), effectively hedging the outflow pressure of active funds
• Active Capital
  : Inflows were relatively lagging in 2025, but are expected to accelerate their return in 2026
• Long-Term Capital
  : Pension funds, sovereign wealth funds, and university endowment funds have shown a clear shift in attitude, adopting a gradual layout[3]

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1. Sustainable Earnings-Driven Growth
   : The improvement in corporate earnings has shifted from “valuation repair” to “earnings growth”, with a more solid foundation[2]

2. Resonance of Incremental Capital
   :
   • JPMorgan Chase expects incremental capital from households, private equity funds, and ETFs to flow into China’s stock market in 2026
   • Changjiang Securities estimates that the cumulative increase in the scale of insurance funds holding stocks and funds will be approximately
     4.47 trillion to 6.54 trillion yuan
     in the next nine quarters[3]
   • The trend of household savings moving to the stock market continues

3. Institutions Generally Bullish on Target Prices
   :
   • JPMorgan Chase: MSCI China Index target of 100 points, CSI 300 Index target of 5,200 points
   • UBS: Hang Seng Tech Index target of 7,100 points (27% higher than current levels)
   • HSBC: Shanghai Composite Index target of 4,500 points, CSI 300 Index target of 5,400 points[1]

4. Room for Improvement in Foreign Investor Positions
   : Global funds’ holdings of Chinese stocks are still below the benchmark ratio, and the “underweight” pattern urgently needs to be corrected

1. Global Macroeconomic Uncertainty
   : Geopolitical factors may trigger market volatility
2. Decision-Making Cycle of Active Funds
   : Long decision-making processes may not adapt to rapid market fluctuations
3. Sustainability of Structural Reforms
   : Signs of sustainable growth are needed to attract more long-term capital

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The trend of foreign institutional investors increasing their holdings of Chinese assets in 2026 is

, with driving factors having strong sustainability:

Dimension	Judgment
Total Volume	The steady trend of foreign investors increasing their allocations will not change
Structure	Focus on the dual themes of “innovation + earnings”
Driving Logic	Shift from valuation expansion to earnings-driven growth
Time Span	Strong sustainability from 2026 to 2027

1. Grasp the Dual Themes of “Innovation + Earnings”
   : Emphasize both tech innovation enterprises (AI, semiconductors, high-end manufacturing) and high-dividend quality assets
2. Focus on Earnings Verification
   : The market will pay more attention to the substantial improvement in corporate earnings in 2026
3. Tech Remains the Core Battlefield
   : Foreign investors’ positive evaluations of China’s tech sector indicate that subsequent capital inflows may further increase
4. Long-Term Mindset for Layout
   : Long-term capital adopts a gradual layout, and investors should focus on long-term structural opportunities

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[1] Zijing Magazine - “Foreign Capital Accelerates Layout in China’s Stock Market” (https://zijing.com.cn/web/article/1456256905010429952/web/content_1456256905010429952.html)

[2] Shanghai Securities News - “Consensus on ‘Reassessing Chinese Assets’ Expands, Foreign Institutional Investors Bullish on China’s Stock Market in 2026” (https://finance.eastmoney.com/a/202512243599942480.html)

[3] Shanghai Securities News - “Resonance Between Domestic and Foreign Capital Expected, China’s Stocks May Welcome ‘Incremental Capital Wave’ in 2026” (https://finance.eastmoney.com/a/202512233598721495.html)

[4] Xinhua News Agency - “Tech Narrative Becomes Increasingly Clear, International Capital Increases Holdings in China’s Stock Market” (http://www.news.cn/tech/20251211/36a693da9f6b47f5bfd075b51fa8a1c0/c.html)

[5] Securities Times Net - “Foreign Investors Continue to Be Bullish on China’s Stock Market!” (https://www.stcn.com/article/detail/3572465.html)

[6] Keqidao - “Foreign Investors Continue to Be Bullish on Chinese Assets: Tech Remains the Main Theme” (https://www.keqidao.com/detail?id=462976314310665)