HONG KONG / BEIJING – December 9, 2025
Chinese equities traded softer on Tuesday as investors took profits after a strong year-to-date rally and waited for clearer policy guidance from Beijing’s leadership on the 2026 economic roadmap. Caution ahead of this week’s US Federal Reserve rate decision added another layer of risk aversion across Asian markets. [1]
Market snapshot: Mainland benchmarks edge lower, Hong Kong extends losses
On the mainland, key indices were modestly weaker after Monday’s advance:
- Shanghai Composite Index: After rising 0.54% on Monday to close near 3,924, the benchmark slipped roughly 0.1–0.2% on Tuesday to around 3,915–3,920, according to intraday data from TradingEconomics and Investing.com. [2]
- Shenzhen Component Index: The tech‑ and growth‑heavy index opened 0.26% lower at 13,295.62, giving back part of Monday’s 1.39% gain to about 13,330. [3]
- ChiNext growth board: The ChiNext Index, which tracks innovative and smaller-cap names, opened down 0.21% at 3,183.61 after surging 2.6% on Monday to 3,190.27 and 2% on Sunday to 3,171.56. [4]
In Hong Kong, selling pressure was more visible:
- By the midday break, the Hang Seng Index (HSI) was down about 0.8% to 25,549.94, extending a 1.2% slide on Monday that had taken the benchmark to roughly 25,765. [5]
- The Hang Seng Tech Index fell around 1.3%, underperforming the broader market. [6]
- The Hang Seng China Enterprises Index, which tracks major mainland companies listed in Hong Kong, dropped about 1.3%, reflecting continued foreign investor caution toward China risk. [7]
Despite today’s pullback, Chinese equities remain sharply higher for 2025. The MSCI China Index is up more than 30% year‑to‑date, driven by a powerful rebound in technology, industrials and select consumer names, according to FNArena’s summary of T. Rowe Price’s China strategy. [8] The iShares MSCI China ETF (MCHI) shows a similar picture, with YTD total returns above 30% as of early December. [9]
Global backdrop: Wall Street pullback and Fed nerves
Tuesday’s softness in Chinese stocks is part of a broader risk‑off tone across Asia:
- An Associated Press market wrap notes that Asian shares were mostly lower after US indices edged back from record highs, as traders braced for the Fed’s final policy meeting of the year. [10]
- Business media in the region highlighted how most major Asian indices opened lower on Tuesday, with investors sensitive to any shift in the Fed’s rate‑cut pace. [11]
Lower US rates are generally supportive for Chinese and other emerging‑market equities, but the near‑term uncertainty around the Fed’s messaging is encouraging profit‑taking after this year’s strong run.
Beijing’s 2026 roadmap: “More proactive” support, but no big bazooka
A key driver of today’s caution is the sense that investors are now in “wait‑and‑see” mode ahead of China’s Central Economic Work Conference (CEWC), the annual closed‑door policy meeting that sets economic priorities for the coming year. [12]
On Monday, China’s Politburo signaled that it will:
- “Keep expanding domestic demand” in 2026
- Pursue a “more proactive fiscal policy” and “appropriately loose monetary policy”, implying a high budget deficit, continued bond issuance and scope for further rate cuts
- Likely maintain a growth target around 5% next year, similar to 2025 [13]
Reuters’ summary of the Politburo meeting also underscores the challenges:
- The economy is still wrestling with a prolonged property slump, weak consumer demand, industrial overcapacity and slowing infrastructure investment, even as headline growth remains near target. [14]
- China’s trade surplus exceeded $1 trillion in the first 11 months of 2025, but exports to the US have dropped sharply, forcing exporters to accelerate a shift toward the EU and Southeast Asia. [15]
Analysts at several global banks interpret this as measured support rather than a “big bang” stimulus, and some argue that the Politburo’s language suggests a “lack of urgency” on aggressive easing, a tone that weighed on Hong Kong sentiment on Tuesday. [16]
Property stress and the REITs solution
China’s embattled property sector remains a central concern for equity investors, especially in bank and developer shares.
In a closely watched article published in Shanghai Securities News and highlighted by Reuters, two senior officials from the China Securities Regulatory Commission (CSRC) called for: [17]
- Rapid expansion of China’s public REIT market, currently about 220 billion yuan, with potential to grow to 7.5 trillion yuan
- A swift move to allow commercial properties—such as office towers, hotels and stadiums—to be packaged into REITs, rather than limiting the market to infrastructure assets
- Faster approval of “high‑quality projects” to ease liquidity strains on developers and meet strong investor demand for yield as risk‑free rates fall
The officials specifically framed commercial REITs as a way to:
- Help large developers such as Vanke, which has been seeking to delay some bond payments, de‑lever and stabilize expectations in the property market. [18]
For stocks, this matters in two ways:
- Developers and banks could benefit if REITs provide an additional channel to monetize assets and reduce balance‑sheet pressure.
- Income‑seeking investors, both domestic and international, may find a broader REIT universe attractive if yields remain meaningfully above government bonds.
However, until clear implementation timelines are announced, the REIT push is being treated as a medium‑term structural positive rather than an immediate catalyst for a sustained rally in property names.
Tech and AI: From market leaders to volatility engines
Technology and AI‑linked stocks remain central to China’s equity story — and Tuesday’s session captured both their importance and their volatility.
In Hong Kong trading:
- Semiconductor Manufacturing International Corporation (SMIC) dropped about 2.4%,
- Baidu slid roughly 2.3%,
- Pop Mart International sank around 4%,
- While heavyweights Alibaba and JD.com also traded slightly lower. [19]
The weakness followed headlines that US President Donald Trump approved Nvidia’s request to export its H200 AI chips to China — a move that may help Chinese AI companies in the near term but also underscores ongoing strategic dependence on foreign chip technology. [20]
Separately, Reuters recently highlighted a global memory‑chip squeeze driven by the AI boom, which is reshaping supply chains and creating both opportunities and cost pressures for Chinese chipmakers and hardware firms. [21]
Meanwhile, analysis from ING and other houses notes that:
- The IT sub‑index of the Hang Seng Composite is up more than 50% over the past 12 months, vastly outperforming the broader Hong Kong market’s roughly 37% gain. [22]
That outperformance explains why tech remains the engine of China’s rally—but also why it is now the focal point for valuation and regulatory risk.
Valuations: From deep discount to “earnings‑driven” phase
After a brutal bear market in prior years, Chinese equities spent much of 2025 climbing out of a valuation hole. Several recent strategy notes released in early December sketch out where things stand now:
- A South China Morning Post summary of Bank of America Global Research puts the forward P/E of the MSCI China Index at about 12.7x, down from nearly 14x in early October after a November pullback. Analysts there argue that further multiple expansion is limited; future returns are likely to be driven by earnings growth rather than re‑rating. [23]
- A T. Rowe Price‑backed analysis on FNArena emphasises that the MSCI China Index’s 30%+ YTD gain has been powered by a policy pivot toward expansion, improving private‑sector sentiment and new growth drivers in tech and industrials. It argues that fundamentals, not geopolitics, have been the dominant driver of 2025 performance, with supportive liquidity set to carry into 2026. [24]
- The iShares MSCI China ETF data show China still trades on a forward P/E in the mid‑teens, with price‑to‑book near 2x — levels that leave it at a discount to many developed markets, despite the sharp rebound. [25]
What strategists are saying about 2026
Today’s trading is happening against a backdrop of fresh year‑ahead outlooks from global banks and asset managers:
- Morgan Stanley expects only mild gains for China stocks in 2026, projecting upside of roughly 3–5% for key benchmarks like the Hang Seng Index as this year’s “blistering rally” cools and earnings uncertainty rises. [26]
- A separate SCMP‑cited strategy piece from Bank of America stresses that after valuations stretched earlier in the year, any further re‑rating will be constrained, reinforcing the view that 2026 will be an “earnings‑driven” phasefor Chinese equities. [27]
- Standard Chartered’s weekly market view notes that offshore Chinese equities delivered strong Q3 earnings, with 2026 EPS growth for the universe estimated around 11%. The bank remains constructive, expecting Chinese stocks to “continue to re‑rate higher” on policy support and AI‑related investment, especially if the CEWC delivers additional targeted stimulus. [28]
- An IG Markets outlook for Asian indices argues that 2026 could be “dynamic” in the region, with Chinese equities gaining momentum from policy support and innovation even as Japan benefits from its own stimulus and corporate reforms. [29]
- A December feature on ShareCafe frames China’s equity market as “poised for gains” into 2026, citing robust corporate earnings and ongoing government support, although it cautions that stock selection will matter more after the broad‑based rally of 2025. [30]
- AInvest’s latest note on “Will China’s Bull Market Extend Into 2026?” highlights how “smart money” is already rotating within China, but suggests consensus return expectations for next year are a more modest 6–9%, given lingering macro and policy risks despite China’s tech competitiveness and valuation discounts. [31]
- RBC Wealth Management’s Asia‑Pacific 2026 outlook argues that last year’s major corrections in Chinese equities were largely driven by US–China trade tensions, and that the October trade truce should provide a more stable backdrop for earnings and sentiment next year, allowing for a more sustainable—if bumpier—rally. [32]
Taken together, the consensus tone is cautiously constructive:
- Upside is still expected, but after a 30%+ run, many strategists see single‑digit to low‑double‑digit returns as more realistic.
- Earnings growth, not multiple expansion, is widely seen as the main driver of any further gains.
- Policy credibility—both in managing the property downturn and in executing the “proactive” 2026 roadmap—will likely determine whether China maintains its comeback narrative.
Short‑term catalysts investors are watching
Tuesday’s softness in Chinese stocks is less about any single headline and more about a cluster of near‑term catalysts:
- Central Economic Work Conference (CEWC)
- Investors are waiting for concrete measures on fiscal expansion, consumption support and property stabilisation following the Politburo’s broad pledge to keep demand expansion and accommodative policy in focus. [33]
- US Federal Reserve decision
- Markets widely expect another 25 bps rate cut, but commentary from AP and other outlets shows that traders are focused on guidance about how many cuts might follow in 2026, a key driver for global risk appetite and capital flows into China. [34]
- Property and REIT reforms
- Any concrete timelines for commercial REIT implementation, or clearer support for developers like Vanke, could shift sentiment in financials and real‑estate stocks. [35]
- Tech and export controls
- The Nvidia H200 export decision, reports about ASML customers with Chinese military links, and ongoing US–China tech tensions all feed into how investors price Chinese hardware and AI names. [36]
- Fund flows and positioning
- Earlier in 2025, EPFR and others documented heavy swings in China‑dedicated fund flows; more recent research suggests global investors are still underweight China relative to benchmarks, which could provide buying power if policy news surprises positively. [37]
Bottom line
Today’s decline in Chinese stocks is modest in index terms but meaningful in message. After a year of powerful gains, the market is clearly shifting from a liquidity‑ and sentiment‑driven rebound toward a more nuanced phase where:
- Policy details, not slogans, will determine whether confidence holds;
- Earnings delivery, especially from tech, consumer and high‑end manufacturing, will need to justify the re‑rating;
- Structural reforms—from property REITs to capital‑markets opening—will be critical to sustaining foreign and domestic inflows.
For now, China’s equity story heading into 2026 remains constructive but conditional: investors are still on board, but they are demanding clearer signals from both Beijing and the Fed before pushing valuations decisively higher again.
This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own research or consult a licensed financial adviser before making investment decisions.
References
1. www.newstimes.com, 2. tradingeconomics.com, 3. english.news.cn, 4. english.news.cn, 5. amp.scmp.com, 6. amp.scmp.com, 7. finimize.com, 8. fnarena.com, 9. www.ishares.com, 10. www.newstimes.com, 11. www.businesstoday.com.my, 12. www.newstimes.com, 13. www.reuters.com, 14. www.reuters.com, 15. www.reuters.com, 16. amp.scmp.com, 17. www.reuters.com, 18. www.reuters.com, 19. amp.scmp.com, 20. amp.scmp.com, 21. www.reuters.com, 22. think.ing.com, 23. www.scmp.com, 24. fnarena.com, 25. www.ishares.com, 26. www.scmp.com, 27. www.scmp.com, 28. www.sc.com, 29. www.ig.com, 30. www.sharecafe.com.au, 31. www.ainvest.com, 32. www.rbcwealthmanagement.com, 33. www.reuters.com, 34. www.newstimes.com, 35. www.reuters.com, 36. amp.scmp.com, 37. epfr.com
