LS: "China's Stock Market Remains Solid Despite Economic Uncertainty... Bull Run to Continue Next Year"

The Chinese stock market, which has been on an upward trend this year, is expected to continue its bullish run next year, supported by the artificial intelligence (AI) investment cycle and the expansion of global liquidity. The growth rate is projected to remain around 5%, similar to this year, although structural issues such as the slowdown in the real estate market are expected to persist.

Baek Gwanyeol, a researcher at LS Securities, stated in the report "China - Unstable Macro, Solid Market" released on November 4, "Even if the economy remains unstable, the stock market is expected to stay robust. Liquidity will remain the main driver of the Chinese stock market in 2026 as well."

Researcher Baek noted, "The exceptional rally of the Korean KOSPI index has somewhat overshadowed the performance of the Chinese stock market," while highlighting this year's rally in Chinese equities. As of the end of October, the Shanghai Composite Index surpassed the psychologically significant 4,000-point level. The ChiNext Index, which is centered on technology stocks, has also outperformed the global benchmark MSCI ACWI in terms of returns since the beginning of the year.

He explained, "The expansion of global liquidity, the AI investment cycle, and expectations for policy and profit recovery have driven the Chinese stock market into a bull run," and predicted, "This bullish trend will continue into 2026." He added, "The launch of the government's AI-centered five-year plan to enhance competitiveness in advanced technology within the global AI investment trend, continued liquidity expansion and a more favorable funding environment in 2026, and the ongoing US-China conflict remain sources of uncertainty. However, since the likelihood of reaching an agreement is higher than that of a sudden deterioration shaking the market, policy and liquidity variables are expected to have a greater impact on earnings and valuations going forward."

Additionally, Baek expects the Chinese government to set a 5% growth target in 2026 as well. He commented, "There may still be market doubts about achieving this target, but as always, the Chinese government will intervene proactively if necessary to meet its goals. With a new five-year plan set to begin in 2026, the intensity of policy measures is likely to increase."

He further noted, "2026 marks the start of the 15th five-year plan. At the same time, new structural reforms will accelerate. The government's policies are expected to focus more on sustaining long-term growth rather than short-term stimulus, and fundamental improvements in consumption and investment sectors will take place in earnest." He added, "There may be some noise in this process, but from now on, it is the upside risks in China, rather than downside risks, that should be watched more closely."

Moreover, he stated, "In addition to short-term stimulus measures such as Yigu Huanshin, the government will also strengthen support policies for future industries, including AI, which is emerging as a new growth breakthrough for the economy. Although the focus may shift from domestic demand to technology development, this can be seen as a 'one step back for two steps forward' strategy."