Fiscal support efforts to subsidize households, boost consumption

Despite the latest A-share pullback, foreign financial institutions remain upbeat on China's equity markets, citing consumption-led rebalancing, shareholder return reforms and profitability improvements as key medium to long-term growth drivers.

Patrick Zweifel, chief economist at Pictet Asset Management, said that the Swiss asset manager maintains an overweight position in Chinese equities, emphasizing that the positive stance is driven not only by cyclical considerations but, more importantly, by structural policy shifts.

"So it's not only related to the traditional business cycle," Zweifel told China Daily, as the country's economic growth in 2025 has been robust compared to its potential growth rate, while inflation has stayed low, keeping the macroeconomic backdrop broadly supportive for equities.

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"There are policies that have been put in place that make us more optimistic about holding Chinese assets."

Notably, the stepped-up fiscal support efforts to subsidize households and boost consumption, Zweifel said, are moving in the "right direction", though remain limited in scale.

He said consumption spending has recovered close to pre-pandemic levels, suggesting that China's consumption challenge is largely structural rather than cyclical, underscoring the importance of reforms aimed at increasing household incomes and improving social support mechanisms.

Zweifel also highlighted reforms encouraging listed companies to improve shareholder returns and dividend payouts, saying such measures bear similarities to shareholder-value enhancement programs introduced earlier in Japan and South Korea.

These changes, he said, help address the issue that, for years, Chinese shares delivered relatively modest returns despite solid economic and earnings growth, largely due to limited dividends and fewer buybacks that led to equity return dilutions.

After registering robust gains in January, the A-share market tumbled on Monday, with benchmark indexes falling more than 2 percent, dragged down by sharp losses in precious metals and energy sectors amid a global commodities rout and risk-off sentiment.

Despite the short-term volatility, Zweifel said Pictet continues to hold gold as a key diversifier amid the intensified geopolitical uncertainties that have weakened trust in the US dollar as a reliable reserve currency, though gold's value is notably expensive relative to normal fundamentals.

"As long as there is no credible alternative, I think that a lot of the diversification (away from the dollar) will actually go to gold," he said.

Goldman Sachs chief China equity strategist Kinger Lau said it is likely that China's stock market will continue a "slow bull" run, with gains in 2026 shifting from valuation expansion to earnings-driven growth.

Driven by advances in artificial intelligence and Chinese companies' overseas expansion — alongside policy support to curb excessive competition — A-share companies' corporate earnings growth is projected to accelerate from about 4 percent in 2025 to around 14 percent in 2026 and 2027, he said.

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The US bank estimates that more than 3 trillion yuan ($431.5 billion) in new domestic capital could enter China's onshore market in 2026, including around 2 trillion yuan from individual investors and 1.6 trillion yuan from institutional funds.

Lau said overseas investors' interest in China has picked up markedly, though some have yet to make large-scale allocations.

He added that global long-only investors are expected to narrow their underweight positions this year, potentially bringing about $10 billion in net inflows into Chinese equities this year.

In terms of allocation, Goldman Sachs remains bullish on AI-related themes, and upgraded hardware to overweight, favors services within the consumer sector and sees opportunities in materials among cyclical stocks.

Contact the writers at zhoulanxv@chinadaily.com.cn