Chinese Stock Market Rally Driven by Retail Investors, 10 Trillion Yuan Potential Inflow

Goldman Sachs has recently released a research report indicating that the current rally in the Chinese stock market is primarily driven by retail investors. However, a substantial amount of "existing funds" has yet to enter the market, providing a strong impetus for further market growth, particularly in the performance of mid and small-cap stocks.

The report highlights that only 22% of household financial assets are currently allocated to stocks and related products. The potential inflow of funds is estimated to exceed 10 trillion yuan, providing ample incremental funding support for the market. This data suggests that there is still considerable room for adjustment in the asset allocation structure of residents, and the stock market has a substantial capacity to absorb funds.

According to the report, the Chinese stock market has consistently been the most net-bought market. The buy-in multiple reached 1.1 times, reflecting the sustained optimism of foreign investors towards the Chinese stock market. From a technical perspective, approximately 10% of the constituents of the Shanghai Composite Index and 8% of the constituents of the Shenzhen Component Index have reached new 52-week highs.

Approximately 90% of the constituents of the Shanghai Composite Index and the Shenzhen Component Index are trading above their 50-day moving averages. This ratio indicates strong market momentum, suggesting that concentration risk is diminishing. Market confidence in a broader range of sectors is increasing, and investor participation is gradually expanding. Brokerage margin accounts are growing rapidly, with non-bank deposits increasing by 140 billion yuan year-on-year in July, driven significantly by funds flowing into stock accounts.

In recent times, several foreign banks, including HSBC, Citigroup, Goldman Sachs, Morgan Stanley, and UBS, have expressed optimism about Chinese assets. On August 6, the Chief Investment Officer of HSBC Private Banking and Wealth Management in China stated that, with policy support, the outlook for A-shares is positive, and there is continued optimism for sectors with high-quality growth potential.

According to market consensus expectations, the earnings growth of companies in AI infrastructure, AI-driven sectors, and AI application sectors is expected to significantly outpace previous years by 2025. The further popularization of AI and the deepening trend of domestic substitution are expected to accelerate the growth of cloud business revenue.

In March, Citigroup downgraded its rating for U.S. stocks from overweight to neutral, while upgrading its rating for Chinese stocks to overweight. Recently, Goldman Sachs predicted that the widespread adoption of artificial intelligence (AI) over the next decade could boost the overall earnings of Chinese listed companies by 2.5% annually, potentially attracting over 200 billion U.S. dollars in capital inflows within the next year.

Previously, Morgan Stanley's research report predicted that global investors' attention to Chinese assets would continue in the near future. The report emphasizes that the Chinese stock market, especially mid and small-cap stocks, still has significant upside potential. The sustained optimism of foreign investors and the potential inflow of substantial funds suggest a positive outlook for the Chinese stock market.