In February, the Chinese equity market saw a volatile rally followed by a sharp pullback. A-shares and H-shares surged early in the month fuelled by policy expectations and a tech rally but saw a sharp decline towards the end due to international tensions and weakness in the US market. In contrast, Chinese ADRs listed in the US benefited from foreign capital inflows and policy support.  The MSCI China, MSCI China All Shares and MSCI China A Onshore Indices gained 11.8%, 8.1% and 2.0% respectively. In terms of foreign capital flows, global hedge funds have significantly increased their exposure to Chinese assets, with the Hong Kong Stock Connect Internet ETF attracting over 50 million yuan in inflows within a week. At the same time, global funds are ramping up investments in the technology and consumer sectors.  

Leading brokers such as Goldman Sachs and Morgan Stanley have raised their target prices for Chinese stocks, forecasting a 15%-20% valuation recovery.

The AI model DeepSeek, known for its low-cost training technology, has driven expectations for increased demand for computing power, boosting tech-related stocks. With the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC) approaching in March, markets anticipate policies aimed at stabilising growth, expanding domestic demand, and advancing technology. The government work report is expected to emphasise real estate and stock market stability, introduce medium- to long-term capital inflows, and establish strategic market stabilisation mechanisms.

The two sessions may also introduce compensation policies for tariff impacts and increase policy support for technology and consumer sectors, including emerging industries like artificial intelligence and low-altitude economy. 

These expectations have led sectors like liquor and infrastructure to outperform despite broader market challenges. 

Economic growth has been supported by stimulus measures, while an increase in the services PMI pointed to a modest recovery in certain sectors. 

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