Analysis of the Impact of Accelerated Entry of Medium- and Long-Term Capital on A-Share Valuation Hub and Investment Style Shift

Based on the latest collected data, I will systematically analyze the impact of the accelerated entry of medium- and long-term capital on the A-Share market’s valuation hub and investment style shift from the perspective of a professional financial analyst.

Analysis of the Impact of Accelerated Entry of Medium- and Long-Term Capital on A-Share Market Valuation Hub and Investment Style Shift

1. Latest Developments and Scale of Medium- and Long-Term Capital Entry into the A-Share Market

According to the speech by Chen Huaping, Vice Chairman of the China Securities Regulatory Commission (CSRC), at the 30th China Capital Market Forum, as of the end of 2024, the total circulating market value of A-Shares held by various types of medium- and long-term capital reached approximately RMB 23 trillion, a 36% increase from the start of the year; the scale of equity funds grew from RMB 8.4 trillion at the start of 2024 to around RMB 11 trillion [1]. This data indicates that the entry of medium- and long-term capital has entered an accelerated phase.

Looking at the latest data for 2025, as of the end of August 2025, the circulating market value of A-Shares held by medium- and long-term capital reached RMB 21.4 trillion, a 28% increase from the start of the year [2]. As of the end of Q3 2025, the book balance of stocks held by insurance companies was RMB 3.07 trillion, an increase of RMB 640.613 billion from the end of 2024, representing a growth rate of 26.38% [3]. Public funds hold over RMB 7 trillion in circulating market value of A-Shares, and have become the largest professional institutional investors in the A-Share market [2].

Table 1: Changes in the Scale of Medium- and Long-Term Capital Entry into the A-Share Market (2024-2025)

Capital Type	Scale at the Start of 2024	Scale at the End of 2024	Growth Rate in 2025
Total Circulating Market Value of A-Shares Held by Medium- and Long-Term Capital	Approx. RMB 17 Trillion	Approx. RMB 23 Trillion	36%
Scale of Equity Funds	RMB 8.4 Trillion	RMB 11 Trillion	31%
Stock Investment Balance of Insurance Companies	Approx. RMB 2.43 Trillion	RMB 3.07 Trillion	26.38%

2. Impact on the A-Share Market’s Valuation Hub

2.1 Valuation Repair and Hub Upward Movement

The continuous entry of medium- and long-term capital has had a significant upward impact on the A-Share valuation hub. According to research from Huatai Securities, the second half of 2025 is expected to bring another opportunity for the valuation hub to rise [4]. CICC (China International Capital Corporation) pointed out that the driving force of the A-Share market in 2025 was mainly valuation repair, and whether the market can successfully switch from valuation-driven to fundamentals-driven in 2026 is crucial [5].

From a horizontal comparison perspective, the A-Share market still has valuation advantages compared to major global markets. Research from Huaxi Securities shows that as of December 5, 2025, the PE (TTM) of the Shanghai Composite Index, Shenzhen Component Index, and ChiNext Index were 16.33x, 30.18x, and 39.82x respectively, all near their historical medians since 2010. In contrast, the PE of the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average were 29.38x, 42.14x, and 30.58x respectively, all significantly higher than their historical medians [6].

2.2 Driving Mechanisms for Valuation Upward Movement

1. Loose Liquidity Supports Valuation Uptick.

Loose macro liquidity provides stronger support for micro liquidity, and as interest rates decline, the attractiveness of stock valuations increases [7]. In a low-interest rate environment, the relative allocation value of equity assets has significantly increased.

2. Institutional Dividends from the Entry of “Long-Term Capital”.

In January 2025, six departments including the Central Financial Affairs Office jointly issued the Implementation Plan for Promoting the Entry of Medium- and Long-Term Capital into the Market, clearly identifying insurance, social security, annuities, public funds, etc., as key guidance targets [8]. The implementation of a long-cycle assessment mechanism has greatly improved the phenomenon of “long-term capital being invested short-term” in the previous A-Share market, enabling medium- and long-term capital to truly play the role of a “stabilizer” [2].

3. Strengthened Expectations of a Profit Inflection Point.

According to calculations by Huaan Securities, the single-quarter profit scale of all A-Shares in each of the four quarters of 2026 is expected to hit a new high since 2020, and the high profit scale lays a solid foundation for valuation digestion and further market development [6]. Substantial improvement in corporate profits will become a key support for the steady upward movement of the market.

2.3 Medium- to Long-Term Outlook for the Valuation Hub

Changjiang Securities believes that against the background of the entry of medium- and long-term capital, the securitization rate of China’s stock market still has considerable room for improvement [9]. China Merchants Securities judges that with the return of the effectiveness of the framework where the “policy bottom, market bottom, economic bottom” appear in sequence, the “Bull Market 2.0” trend is expected to launch in 2026 [10]. Bank of Shanghai Fund points out that the current indicator of “A-Share Free Circulating Market Value / Resident Deposit Balance” is still at a historical low, indicating that the process of resident asset migration to the equity market has just begun [11].

3. Impact on Investment Style Shift

3.1 Accelerated Institutionalization Process and Style Remodeling

The accelerated entry of medium- and long-term capital is profoundly changing the investor structure and investment style of the A-Share market. Professor Cheng Fengchao pointed out that long-term capital prefers high-quality enterprises with standardized governance and sustainable innovation capabilities, which helps drive more capital to the real economy and the field of new-quality productive forces [12].

Table 2: Review of A-Share Market Style Evolution in 2025

Time Period	Dominant Style	Driving Factor
Start of the Year to End of February	Tech Growth	DeepSeek-triggered AI industry chain rally
Early March to Early April	Large-Cap Dominance	After tech sector congestion coupled with stability maintenance demands
End of June to End of September	Small-Cap Outperformance	Improved liquidity, resident deposit migration
End of August to End of the Year	Style Equalization	Macro environment supports but small-cap valuations are relatively high

3.2 Deepening of Value Investing Philosophy

The entry of medium- and long-term capital has promoted the deepening of the value investing philosophy in the A-Share market. Research from CICC shows that from the start of 2025 to the end of February, the market was led by tech growth, with growth outperforming value; from then to the end of June, due to the large gains in some sci-tech innovation sectors coupled with the impact of external tariffs, value outperformed growth [5].

Huatai Securities pointed out that against the backdrop of a sustained low-interest rate environment, insurance capital may still rely on dividend strategies and increase allocation to high-yield stocks due to cash yield pressure. As the valuations of dividend stocks rise rapidly, the attractiveness of their dividend yields has declined, and the dividend strategy of insurance capital is shifting from the past “buy buy buy” Phase 1.0 to the “picking wheat ears” Phase 2.0 [3].

3.3 Popularity of the Barbell Strategy

In 2025, the “barbell” allocation strategy became the market mainstream. CITIC Construction Investment Securities pointed out that high-quality growth, domestic consumer demand, and M&A restructuring will become three important tracks [4]. Debang Securities believes that the “barbell” strategy is a key layout theme for equity assets worthy of attention in 2025, with one end of the “barbell” being high-quality dividend assets and the other end being the tech growth sector representing new-quality productive forces [13].

Tang Xiaodong, Co-General Manager of the Macro Strategy Department of China Southern Fund, suggested that investors adopt a relatively balanced allocation in 2026, with moderate balance between value and growth, and between large-caps and mid- to small-caps [14]. This suggestion reflects institutional investors’ expectations for future style shifts.

3.4 Catalysts for Style Shift

Macro Factors:

Zhongtai Securities analyzed that the macro environment still favors growth, but the large- and small-cap style of the emerging growth sector is gradually becoming more balanced. As the status of the sci-tech innovation field in the A-Share market gradually improves, the proportion of emerging growth in large-cap enterprises has increased, and the proportion of large-caps in the market value distribution of the emerging growth sector has also increased [5].

Policy Factors:

In the inaugural year of the 15th Five-Year Plan, policy support for sci-tech innovation continues to increase. Invesco Great Wall is optimistic about the repricing opportunities for industrial metals and precious metals under the new global pattern; Haitong Fund believes that resonance with the global commodity rally cycle will drive the periodic dominance of resource products and procyclical industries [14].

Profit Factors:

China Southern Fund pointed out that the rise of A-Shares in 2025 was mainly driven by valuation repair brought about by loose liquidity, and the substantial improvement in corporate profits in 2026 will be the key to whether the market can move upward steadily [14].

4. Changes in Allocation Preferences of Institutional Investors

4.1 Allocation Dynamics of Insurance Capital

Research from Zhongtai Securities shows that as of the end of Q3 2025, insurance capital appeared in the top 10 tradable shareholders list of 633 listed companies, with a total market value of holdings of RMB 651 billion. The top five SW (Shenwan) first-level industries in terms of total market value held by insurance capital are Banking (RMB 316.52 billion), Public Utilities (RMB 41.43 billion), Transportation (RMB 38.16 billion), Communications (RMB 35.94 billion), and Power Equipment (RMB 24.46 billion) [3].

4.2 Allocation Dynamics of Public Funds

Research from Galaxy Securities shows that as of the end of Q3 2025, actively managed equity-oriented funds held RMB 3.58 trillion in stock market value, a quarter-on-quarter increase of RMB 630 billion. Among this, the market value of A-Shares held was RMB 2.99 trillion, an increase of RMB 540 billion. In the asset allocation structure, the stock position increased from 84.24% at the end of Q2 to 85.62%, which is at a historical high level since 2005 [3].

The self-purchase behavior of fund companies shows a trend of concentration on leading players and long-term characteristics. The total self-purchase transaction amount of fund companies in 2025 reached as high as RMB 562.658 billion, a significant increase of 51.8% compared to 2024 [15]. Among them, index funds have become the key focus of self-purchase layout, with the total self-purchase amount of three types of products—passive index bond funds, passive index funds, and enhanced index funds—accounting for over 53% [15].

4.3 Allocation Dynamics of Foreign Capital

Foreign capital’s attention to the A-Share market is increasing day by day. Wind data shows that since 2025, foreign institutional investors have conducted a total of over 9,000 research visits to A-Share listed companies, mainly focusing on high-prosperity industrial chains such as artificial intelligence, industrial automation, new energy, semiconductors, and consumer electronics [3]. As of the end of Q3 2025, QFII (Qualified Foreign Institutional Investors) appeared in the top 10 tradable shareholders list of 856 A-Share listed companies, a significant increase from 781 at the end of 2024; the total market value of holdings by foreign institutional investors reached RMB 150.4 billion, an increase of over RMB 33 billion from the end of 2024, representing a growth rate of 28.4% [3].

5. Conclusions and Outlook

5.1 Core Conclusions

Impact on the Valuation Hub:

The accelerated entry of medium- and long-term capital provides a stable source of incremental capital for the A-Share market, effectively supporting the upward movement of the valuation hub.
The establishment of a long-cycle assessment mechanism makes “long-term capital invested long-term” possible, reducing the disturbance of short-term market fluctuations on long-term capital.
Under the low-interest rate environment and expectations of profit improvement, A-Share valuations still have room for upward repair.

Impact on Investment Style Shift:

The entry of medium- and long-term capital has promoted the shift of investment style from short-term speculation to value investing and long-term allocation.
The “barbell” strategy (dividends + growth) has become the mainstream allocation model for institutional investors.
The market style is shifting from extreme to balanced, with large- and small-cap, growth and value styles tending to balance.

5.2 Future Outlook

Looking ahead to 2026, institutional investors are generally optimistic about the A-Share market. CITIC Construction Investment Securities judges that the “Full-Bull” market trend is expected to launch in the second half of 2026 [10]. China Merchants Securities expects that A-Shares will gradually transition from liquidity-driven to profit-driven “Bull Market Phase III” in 2026 [10].

In terms of specific allocation directions, institutional investors suggest focusing on the following themes:

Prosperous Growth:
Tech hardware and software such as lithium batteries, high-end manufacturing, semiconductors, consumer electronics, and software
Resilient External Demand:
Power grids, commercial vehicles, home appliances, and globally priced resource products
New-Style Dividends:
High-dividend assets, with focus on pan-consumption sectors such as food and beverages
Policy-Supported:
M&A restructuring, below-net-asset-value valuation repair, and areas related to local government debt resolution

References

[1] CSRC: Promote Various Types of Medium- and Long-Term Capital to Further Increase the Proportion of Market Entry Scale - Eastmoney

[2] One Year Since the Implementation of the “Guiding Opinions on Promoting the Entry of Medium- and Long-Term Capital into the Market” - China Securities Regulatory Commission (CSRC)

[3] The “Long-Term Capital Invested Long-Term” Ecosystem is Improving Day by Day, and the Resilience of the Capital Market is Continuously Enhanced - Xinhua News

[4] Leading Securities Firms’ 2025 Research Released: A-Share Uptrend May Continue - 21st Century Business Herald

[5] CICC | 2025 A-Share Review: Over the High Mountains, Forge Ahead with Momentum - Sina Finance

[6] The “Tech Narrative” is Becoming Increasingly Clear, International Capital Increases Exposure to China’s Stock Market - Xinhua News

[7] CITIC Construction Investment Securities: Optimistic About the “Confidence Reassessment Bull” in the Medium Term - 21st Century Business Herald

[8] Introduction to Relevant Situations of Vigorously Promoting the Entry of Medium- and Long-Term Capital into the Market to Promote High-Quality Development of the Capital Market - China Securities Regulatory Commission (CSRC)

[9] Top 10 Securities Firms Analyze 2026 A-Shares: Bull Market is Expected to Continue, Style May Become More Balanced - The Paper

[10] Shenwan Hongyuan Securities: “Full-Bull” Market Trend is Expected to Launch in the Second Half of 2026 - The Paper

[11] 2026 A-Share Investment Strategy: Inaugural Year of the 15th Five-Year Plan Starts a New Journey, Profit-Driven Slow Bull Advances - Jufeng Fund