Chinese stocks could enter a phase of “slow growth” amid market reforms aimed at reallocating household wealth from real estate to the stock market.
UBS reckons that the A‑stock market lagged leading global indices for more than a decade not because of weak economic growth but because of structural problems in the capital market system.
Key factors include a historical corporate focus on financing rather than boosting shareholder returns, a large share of state‑owned enterprises trading at a notable discount to private peers, and limited household participation in stock investments. This is reflected in a high risk premium on stocks.
UBS believes that a transition to sustainable, gradual equity‑market growth is strategically important for China. As the real estate market loses its role as households’ main store of wealth, stocks are expected to play a more significant role.
Steady strengthening of the stock market could support the “common prosperity” agenda, boost confidence in private companies, and channel capital into priority areas, including advanced manufacturing and technological self‑sufficiency.
A potential re‑rating of state‑owned enterprises could also ease pressure on pension systems by increasing the return on state capital.
Regulators are shifting focus to dividend policy, share‑buyback programs, disclosure standards, and market‑cap management to attract long‑term capital.
Another reform track aims to stimulate mergers and acquisitions to help firms scale up and improve competitiveness. Bigger changes in SOE governance could also narrow valuation gaps between the state and private sectors.
Liquidity conditions are expected to improve as authorities seek to restrain IPO activity and the sale of large share stakes while expanding participation by long‑term investors.
UBS also notes that state‑backed market purchases intended to smooth sharp declines provide an additional buffer against downswings.
The bank forecasts A‑share earnings growth accelerating to roughly 8% in 2026. Support for this growth could come from faster nominal GDP growth, easing producer‑price deflationary pressure, stimulative policy, and measures to curb overcapacity — all of which should help corporate revenues and margins.
Meanwhile, Chinese stocks rose about 6% in 2025.
UBS expects further market re‑rating amid stronger profit growth, a decline in the risk‑free rate, continued household reallocation of savings into equities, and steady progress on market reforms over the medium term.
