China's New Equity Equation

Please find below our latest thoughts on China:

• One of the interesting features of the China A-share market over the past two years is not just that it has outperformed the S&P 500 since bottoming in early 2024¹, but that it has done so with far less drama than in previous cycles.
• This is particularly striking given the backdrop.
• The market has navigated everything from “Liberation Day” tariffs to ongoing conflict in the Middle East, yet drawdowns have been much shallower than during episodes such as the 2015-16 market bubble bursting, the 2018 US-China trade war, or the Covid period in 2021-23.
• In our view, a big part of the explanation is a shift that is often overlooked – a much healthier balance between equity demand and equity supply.

• Historically, one of the biggest headwinds for China A-shares was persistent dilution.
• Back in 1995, there were only around 300 listed companies on the Shanghai and Shenzhen stock exchanges. Today there are more than 5,000.² Along the way, investors also had to absorb large amounts of secondary issuance and other equity fundraising.
• For anyone wondering why China’s strong economic growth did not translate into strong stock market returns, the relentless increase in equity supply is an important part of the answer.
• Contrast this with the US. Over the past three decades, the number of listed companies has roughly halved³ , while many US companies used cash flows to buy back shares, reducing equity supply even further.
• Combined with steady inflows from retirement savings plans, 401(k) contributions and other sources, this created persistent support for equity valuations.
• China was almost completely the opposite. Until recently.
• In early 2024, regulators introduced a series of capital market reforms that marked a clear shift in priorities, from focusing primarily on raising capital to placing much greater emphasis on shareholder returns and market stability.
• The reforms included tighter scrutiny of IPO applicants, stricter disclosure requirements, and greater restrictions on secondary equity issuance, convertible bonds and other forms of fundraising that can dilute existing shareholders.
• The impact was quick and significant. IPO activity fell to around 100 listings per year in 2024 and 2025 compared with more than 500 IPOs in 2021.⁴
• At the same time, regulators encouraged companies to return more capital to shareholders. Dividends have climbed steadily to record levels and share buybacks have surged, albeit from a low base.

• The result has been a much more balanced relationship between equity demand and equity supply.
• This more supportive market backdrop has been reinforced by a willingness from policymakers to step in during periods of higher market volatility – for example, post “Liberation Day” or more recently during the tech-related correction in July this year
• The most visible example has been the activity of the so-called “National Team”, which has bought domestic ETFs during periods of market weakness. What started with broad market ETFs has gradually expanded to include a wider range of products, including technology-focused ETFs.
• Importantly, the policy framework has evolved beyond a simple “Beijing put”. In early 2026, ETF positions were sold down as policymakers became more concerned about excessive speculation than weak markets.
• This activity begs the question: why have equity markets become such an important policy focus?
• We see several reasons. A stronger stock market can help offset some of the wealth effects from a weaker property sector, provide funding for strategically important industries such as semiconductors (eg, the recent listing of memory chip producer CXMT) and support the development of long-term savings pools at a time when China’s pension system remains relatively underfunded.
• By contrast, significant parts of China's technology hardware value chain, especially within the onshore A-share market, often receive far less attention.
• A key takeaway is that China A-shares today operate within a very different framework than they did in previous cycles. Lower levels of equity issuance, rising dividends and buybacks, and a greater emphasis on market stability have addressed several of the structural issues that historically weighed on shareholder returns.
• Against this backdrop, we believe China A-shares increasingly deserve consideration not only as a way to access China's future growth engines, but also as a market where the underlying demand and supply dynamics are becoming much more supportive for long-term investors.

¹ Source: Bloomberg as at 22 September 2026
² Source: World Federation of Exchanges (WFE) as at 31 December 2025
³ Source: World Federation of Exchanges (WFE) as at 31 December 2025
⁴ Source: Wind as at 31 December 2025