Author: Jianghai Securities Co., Ltd.
Currently, global capital is increasing its holdings of Chinese assets at a historically unprecedented pace. From sovereign funds to international investment banks, and from equities to bonds, diversified capital inflows underscore the continuously enhanced attractiveness of China's capital market. Behind this trend lies not only the resilience of the Chinese economy but also the deepening of institutional opening, the maturation of market ecosystems, and the systemic improvement of asset quality. China's capital market is gradually becoming a vital platform for global asset allocation, offering both a safety margin and growth potential.
Institutional Opening Fosters a Market Ecosystem Aligned with International Standards
The opening of China's capital market has transitioned from policy-driven initiatives to institutional construction, achieving an upgrade from "flow channels" to "systemic integration" through rule alignment and mechanism connectivity. Foreign institutions have made substantive progress in operating in China, with several global systemically important banks, foreign-controlled securities firms, and wholly foreign-owned fund management companies completing their deployments and deeply participating in market development. The Qualified Foreign Institutional Investor (QFII) regime has been continuously optimized, providing international capital with a more convenient participation environment.
The connectivity mechanisms have continuously expanded and enhanced efficiency. In September this year, the China Securities Regulatory Commission (CSRC) announced the inclusion of eligible Exchange-Traded Funds (ETFs) in the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect programs, while simultaneously optimizing trading and settlement mechanisms to facilitate cross-border investment. Over the past four years of operation, the Bond Connect "Southbound" link has significantly improved the efficiency of bidirectional capital flows between onshore and offshore markets, becoming an important symbol of high-level financial market opening. The rapid development of cross-border ETFs has also provided international investors with a one-stop tool for efficiently allocating Chinese assets.
The comprehensive implementation of the registration-based IPO system has driven a shift in market operation logic toward "information disclosure as the core." The opening of listing channels for unprofitable technology companies has enabled the capital market to more precisely serve technological innovation and industrial upgrading. Key progress has been made in cross-border audit regulatory cooperation, creating a stable and predictable institutional environment for long-term capital entry.
Asset Quality Improvement and Structural Optimization Enhance Investment Appeal
The asset quality of China's capital market is steadily improving. The robust recovery of the real economy's fundamentals provides solid support for corporate earnings. Since the beginning of this year, industrial enterprise profits have shown a rebound, with manufacturing profit growth significantly improving, reflecting the effectiveness of high-quality development. The overall profitability of A-share listed companies has strengthened, with a high proportion of firms reporting earnings growth expectations. The continuous growth in dividend payouts and share buybacks reflects enhanced shareholder return awareness among listed companies and an improvement in market intrinsic value.
Meanwhile, technological innovation has injected new growth momentum into the capital market. Breakthroughs in hard-tech fields such as artificial intelligence, new energy, and biomedicine have driven rapid profit growth in related industries. International capital has noticeably increased its allocation to leading companies in these technology sectors, with hard-tech assets gradually becoming a core component of foreign holdings, marking a shift from traditional cycle-driven to innovation-driven markets.
The bond market also demonstrates unique allocation value. RMB-denominated government bonds, characterized by low volatility and positive returns, have become a scarce stable asset in the global fixed-income market. Chinese government bonds offer global investors an important risk-hedging option and yield supplement, attracting continuous increases in holdings from several international large asset management firms.
Market Ecosystem Optimization Enhances Long-Term Investment Value
Accompanying the deepening of opening-up, China's capital market has seen simultaneous improvements in investor structure, risk management, and the legal environment. The proportion of foreign investor holdings has steadily increased, forming a diversified investment base alongside domestic institutions. Sovereign funds, hedge funds, fixed-income institutions, and other types of capital employ differentiated strategies, creating a multi-tiered and complementary capital structure that effectively smooths market volatility and enhances stability.
The financial derivatives market has developed steadily. The usage of tools such as stock index options and government bond futures has grown rapidly, while foreign exchange hedging channels have continuously broadened, significantly expanding the operational space and confidence of foreign institutions in medium- to long-term asset allocation.
Legal and regulatory construction has continuously solidified market foundations. Supporting measures for the newly revised Securities Law have been sequentially implemented, increasing penalties for illegal activities and continuously improving investor protection mechanisms. The orderly advancement of a regular delisting system is fostering a more standardized, transparent, and predictable market environment.
Strategic Allocation Value Stands Out from a Global Perspective
The fundamental support for the attractiveness of China's capital market comes from the sustained and healthy development of the Chinese economy and its rising global stature. While maintaining reasonable growth rates, China has achieved significant progress in economic structural optimization and upgrading, with new drivers such as high-tech manufacturing and the digital economy continuously expanding, providing the capital market with a rich source of high-quality assets. Currently, global capital allocation to Chinese assets remains in its early stages, with significant gaps between holding scales and China's global economic share. This allocation deficit reflects past limitations in market openness but also indicates vast potential for future international capital inflows. As international index providers gradually increase the weighting of A-shares, both passive and active funds now view Chinese assets as an indispensable component of their portfolios.
China's capital market is undergoing a profound transformation driven by institutional opening, technological innovation, and structural upgrading. From investment channel liberalization to market rule internationalization, from traditional industry profit recovery to emerging technology breakthroughs, and from investor structure optimization to legal environment improvement, multiple positive factors are converging to propel the market into a new stage of high-quality development. Against the backdrop of profound changes in the global economic landscape, China's capital market, with its growing endogenous dynamics and institutional competitiveness, has become an important destination for international capital in long-term deployments. As the dividends of opening-up continue to be released and market vitality is further unleashed, China's capital market will play a more significant role in the global financial system, providing a broader platform for global investors to share in China's development opportunities.
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