China’s stock market is defying global trends and surging, even as former U.S. President Donald Trump tightens trade restrictions and imposes fresh tariffs. While most Asian markets have struggled, Chinese indices like the SSE Composite and CSI 300 continue to gain momentum. Experts point to five key reasons behind this unexpected rally, including portfolio inflows, attractive valuations, government stimulus, and a tactical shift in global investments.
China’s Market Defies Global Headwinds
While U.S. tariffs and trade tensions often send shockwaves through global markets, China’s stock market remains resilient. The SSE Composite Index has climbed over 3.5% this year, while the SZSE Component Index surged 9% YTD. In contrast, Japan’s Nikkei and India’s Nifty 50 have suffered losses of 1.35% and 4%, respectively. The question is—why is China thriving when others are struggling?
1. Portfolio Inflows Boost Market Confidence
China is increasingly becoming a top destination for global investors. With U.S. and European markets offering limited upside, foreign institutional investors (FIIs) are shifting capital toward China. The Hang Seng Index, which channels international funds into Chinese companies, has jumped nearly 18.7% in a month.
According to VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, Trump’s policies have driven capital out of U.S. markets, redirecting it toward emerging economies. China, backed by economic stimulus and promising growth prospects, is reaping the benefits.
2. Attractive Valuations Drive ‘Sell India, Buy China’ Trend
Indian equities have seen a massive sell-off, with market capitalization dropping by nearly $1 trillion since October 2024. Meanwhile, China’s market capitalization has grown by $2 trillion in the same period. Analysts attribute this to the ‘Sell India, Buy China’ trend, where investors are cashing out of expensive Indian stocks and investing in undervalued Chinese equities.
3. Strong Government Stimulus Reassures Investors
China’s proactive economic measures have bolstered investor sentiment. Beijing has rolled out interest rate cuts, injected liquidity into the economy, and introduced targeted policies to stabilize sectors like real estate and technology. These actions have encouraged a market rebound, restoring investor confidence.
According to Vaibhav Porwal, Co-Founder of Dezerv, China’s stimulus efforts have successfully countered past economic downturns and positioned the country for sustained growth.
4. U.S.-China Tech War Shifts Investment Patterns
Trump’s latest tech sector restrictions on Chinese companies triggered a sell-off in firms like Alibaba and Tencent, yet the broader market remains unfazed. The Hang Seng Tech Index plunged 4.4% in a single day, its sharpest drop since November. However, China’s deepening focus on AI, automation, and semiconductor self-sufficiency is drawing long-term investors.
Wall Street analysts remain optimistic about Chinese tech stocks, highlighting President Xi Jinping’s continued support for AI and digital innovation. This has offset concerns over Trump’s policies and cemented China’s status as a major player in the tech sector.
5. DeepSeek and AI Revolution Fuel Optimism
China’s homegrown AI advancements, particularly DeepSeek’s chatbot breakthrough, have reshaped investor sentiment. With DeepSeek gaining traction, traders are re-evaluating their strategies, shifting funds from U.S. tech giants to Chinese AI startups. This surge in domestic innovation is keeping China’s stock market afloat despite regulatory headwinds.
Will China’s Market Momentum Continue?
Despite Trump’s efforts to limit Chinese economic expansion, China’s stock market remains a beacon of resilience. The combination of foreign investment, government stimulus, and technological progress continues to fuel optimism among investors. While challenges persist, China’s ability to adapt and innovate keeps its market on an upward trajectory.
As tensions between the U.S. and China evolve, global investors will closely monitor how China navigates trade restrictions and sustains economic growth. For now, the Chinese stock market appears poised to maintain its bullish momentum in 2025.