China’s Bull Market Driven By Retail Investors And Policy Support, Faces Bubble Risks

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China’s stock markets have soared to their highest level in ten years, lifted by strong inflows of household savings, government policy backing, and renewed investor confidence. Analysts, however, caution that the rally may be building into a bubble if economic growth remains weak.

Stock Indexes Reach Decade-High

China’s Shanghai Composite Index recently closed at 3,766 points, its strongest finish in a decade, gaining 1% in a single day. The CSI 300 Index, tracking major companies in Shanghai and Shenzhen, rose 1.1%, while Hong Kong’s Hang Seng Index posted a smaller 0.2% gain.

Why the Rally Is Happening

The rally is being fueled by several major factors:

Shift from Savings to Equities: With bank deposit rates declining, many Chinese households are moving money from savings into stocks. Goldman Sachs notes that maturing time deposits are increasingly being redirected to equities.
Fund Flows: Since July, more than 200 new mutual funds have launched, raising over 67.7 billion yuan. About 70% of this capital has been directed toward stock markets, giving markets strong liquidity support.
Policy Support: Pro-growth measures and China’s anti-involution campaign, which discourages destructive price wars in industries like steel and solar, have bolstered investor confidence.
Trade Truce with the U.S.: Although some sectors like semiconductors may still face tariff risks, easing U.S.-China tensions have lowered risk premiums and attracted overseas inflows.

Retail Investors Take the Driver’s Seat

Analysts highlight that Chinese retail investors are currently dominating trading activity, accounting for nearly 90% of daily transactions. With household savings exceeding 160 trillion yuan (around $22 trillion), even a small shift into equities provides massive momentum for stocks.

Views from Major Analysts

JP Morgan’s Chaoping Zhu: Believes the rally could continue into 2026 but expects intermittent corrections. He sees policy measures supporting key sectors like steel and solar energy.
HSBC’s Herald van der Linde: Stresses that retail investors are driving the market, rotating out of low-yield bonds into equities due to improved sentiment.
Macquarie’s Eugene Hsiao: Notes that easing trade tensions and “fear of missing out” (FOMO) could also attract overseas institutional investors.
Nomura Analysts: Warn of excess leverage and potential bubble risks as equity gains accelerate despite slower economic growth.
Lombard Odier’s Homin Lee: Cautions that rallying markets may not be sustainable if inflation stays near 0% and domestic demand remains weak.
Lotus Asset Management’s Hao Hong: Sees parallels with the 2015 boom-and-bust cycle, though states it is still early days.

Risks Ahead

Despite strong momentum, experts warn that China’s rally carries risks. Excessive leverage, muted domestic consumption, and ultra-low inflation could undermine the bull market. A sudden shift in sentiment may also trigger rapid outflows, making the rally fragile.

Moreover, policymakers face a balancing act. While pro-growth measures support stock markets, stronger stimulus could fuel a bubble, making the eventual correction sharper.

Conclusion

China’s stock markets are riding a powerful wave of retail money and policy support, reaching levels not seen in ten years. The rally shows the reawakening of investor confidence and a rotation away from savings into equities. However, analysts remain divided on sustainability, warning that rising risks, if not carefully managed, could turn the boom into a bubble.

China’s Industrial Profits Drop for Third Month as Deflation and Competition Grow

Update: August 27, 2025

China’s industrial profits fell for the third month in a row in July, down 1.5% from a year earlier, official data from the National Bureau of Statistics showed. For the first seven months of 2025, profits were 1.7% lower compared to last year. The decline comes as deflation continues to weigh on the economy and competition among factories remains intense. Factory-gate prices, which show what producers charge for goods, have now fallen for 34 months in a row. This long stretch of price drops has been cutting into company earnings and hurting consumer spending. While stronger sales to non-U.S. markets gave some relief, new export orders overall dropped at the fastest pace in three months, raising fresh concerns about overseas demand. Government efforts to reduce excess competition have so far failed to improve profit margins, leaving China’s industrial sector under growing pressure.