Analysis of Driving Factors for the Broad Rally of Chinese Concept Stocks and the Sustainability of Valuation Repair

Based on the latest market data and in-depth analysis, I will systematically interpret the driving factors behind the broad rally of Chinese concept stocks and the issue of the sustainability of valuation repair for you.

According to market data analysis, the current broad rally of Chinese concept stocks is the result of the resonance of multiple factors[1]:

Chinese concept stocks have experienced in-depth adjustments over the past two years, with the Nasdaq Golden Dragon China Index once falling to a historically low range. As market sentiment warms up, capital has begun to re-examine the investment value of Chinese internet assets[1]. Goldman Sachs expects that Chinese stocks still have about 10% valuation repair potential, which will provide support for the market’s upward movement[3].

Recently, the RMB exchange rate has shown a trend of stabilizing and strengthening, with USD/CNY continuing to trade below the 7.0 level. The stability or even appreciation of the exchange rate directly enhances the attractiveness of RMB-denominated assets to overseas investors, becoming an important catalyst for the rise of Chinese concept stocks[2].

On January 12, 2026, the Shanghai Composite Index closed at a new high in over a decade, with A-share turnover exceeding 3.6 trillion yuan, a significant increase of over 510 billion yuan compared to the previous trading day, setting a record for A-share single-day turnover. The strong performance of the A-share market has produced an obvious spillover effect, driving Hong Kong stocks and Chinese concept stocks to rise in tandem[2].

Global capital has continued to flow into Chinese assets since 2025. As of December 20, 2025, ETFs investing in Chinese assets globally have accumulated a net capital inflow of US$83.1 billion, with the technology sector receiving the largest foreign capital inflow of US$9.5 billion, mainly from the United States and Europe[3].

According to the 2026 outlook of six private equity institutions, the A-share and Hong Kong stock markets are experiencing a shift from “valuation repair” to “earnings-driven”[4]:

• Earnings Growth Expected
  : HSBC expects the Shanghai Composite Index to reach 4,500 points and the CSI 300 Index to reach 5,400 points by the end of 2026. This upward movement of the index will be mainly driven by corporate earnings growth rather than valuation expansion[3]

• Foreign Capital Remains Optimistic
  : JPMorgan has upgraded its rating on the Chinese market to “Overweight”, believing that market valuations are still in a reasonable range and that international investors have relatively light positions[3]

• Policy Support
  : Proactive fiscal policy and moderately accommodative monetary policy will continue, infrastructure investment will rebound moderately, and boosting domestic demand is the top priority[4]

• Base Effect
  : A-shares and Hong Kong stocks have achieved substantial gains in 2025. Under the base effect, the overall increase in 2026 will most likely be slightly lower than that in 2025[4]

• Structural Differentiation
  : Subsequent attention needs to be paid to the achievability of performance for valuation calibration, and the market will be dominated by structural differentiation[4]

• External Environment
  : Although Sino-US relations are complex, the most tense phase may have passed, and uncertainty has marginally eased[1]

According to the 2026 outlook of foreign institutions, investment opportunities in China’s internet sector are mainly concentrated in the following directions[3]:

1. Sufficient Short-term Momentum
   : The broad rally of Chinese concept stocks is the result of the resonance of multiple factors such as valuation repair, capital return, exchange rate stability, and A-share driving, with sufficient short-term momentum

2. Mid-term Logic Shift
   : In 2026, China’s stock market will enter a new phase dominated by earnings growth. There is still room for valuation repair, but the upward momentum will rely more on the improvement of corporate fundamentals

3. Structural Opportunities as Main Focus
   : The technology sector remains the main theme, but attention needs to be paid to performance fulfillment; valuation repair in traditional industries and performance fulfillment of emerging growth sectors will form the dual engines of the market

• Global macroeconomic uncertainty
• Potential disturbances from changes in Sino-US relations
• Underperformance of some companies
• Changes in liquidity environment

[1] Caifuhao - “Huya Surges 23%! Chinese Concept Stocks Stage a Furious Late-session Reversal, Big Move Implied at 7789 Points” (https://caifuhao.eastmoney.com/news/20260109001410035699340)

[2] Dahe Cube - “Breaking News! Chinese Concept Stocks Rally Across the Board! What’s Going On?” (https://app.dahecube.com/nweb/pc/article.html?artid=259292)

[3] 21st Century Business Herald - “Foreign Capital Remains Optimistic About Chinese Assets: Earnings Take Over from Valuation, Technology Remains the Main Theme” (https://www.21jingji.com/article/20251229/herald/36265bf729f2cfe733b87fedb5df6eda.html)

[4] Securities Times - “Six Private Equity Institutions’ 2026 Outlook: Stock Market Still Has Good Opportunities, Growth and Value Styles Tend to Be Balanced” (https://www.stcn.com/article/detail/3550076.html)