China retail investors are using savings to fuel stock market bull run
China’s stock market has been rallying to multiyear highs as trade tensions with the U.S. have eased for now. Fueling the bull run are ordinary Chinese households, flush with record savings and a fear of missing out. Mainland China’s benchmark CSI 300 is up nearly 22% since its April 7 low, following U.S. President Donald Trump’s rollout of “reciprocal tariffs,” on April 2. The index on Friday closed at its highest since July 2022. Total Chinese household savings currently stand at more than 160 trillion yuan ($22 trillion), a record high, according to HSBC. That is more than a third of the total market capitalization of the U.S. stock market . Chinese households that once sat on piles of cash as economy faced headwinds are beginning to put their excess deposits to work, said Herald van der Linde, chief Asia equity strategist at HSBC. China’s retail investors drive the bulk of activity in its onshore markets, driving 90% daily trading, data provided by HSBC showed. This is in stark contrast to several major markets where the trading is driven by institutional players — for instance, retail investors account for about 20%-25% of trade volumes on the New York Stock Exchange. The change in open interest for CSI 300 index futures , which signals new money or positions entered or exited the market, rose to 26,380 in July, compared with a drop of 48,192 in April. “It is this allocation of excess savings in China that is the key driver [of onshore markets]. That might well continue for quite some time. This is very big,” Van der Linde told CNBC. “Foreign appetite for Chinese equity has been muted …The big driver is now the Chinese household,” he said. Goldman Sachs said in a note that maturing time deposits are likely shifting into equities, given the decline in deposit rates. China’s one-year bank deposit rates slipped below 1% for the first time in May. Trading via margin financing accounts that allow users to purchase stocks by borrowing money rose from a trough of around 1.80 trillion yuan around May and June of 2025 to 2.03 trillion in August, data published by HSBC showed. The bank also noted that new mutual fund issuances in China have surged 132% year on year. China’s historically high savings rates stem from a combination of factors: inadequate social safety nets prompting precautionary savings; demographic shifts, marked by an aging population; high and unpredictable costs for housing and healthcare. China’s gross domestic savings stand at over 43% of its GDP, according to World Bank data. That cash hoard, combined with structurally low equity ownership means retail investors in China could keep driving markets higher, according to experts. A November 2024 report by Global X ETFs showed that equities account for only 5% of Chinese household assets, compared to 60% in property and 25% in deposits. Chinese households’ equity market allocation is also lower than U.S. and European households, which make up 25% and 12%, respectively. Easing trade tensions and FOMO Policy stability and easing trade tensions have underpinned confidence amongst Chinese investors. U.S. and China in May agreed to a 90-day tariff truce that rolled back steep duties imposed by both in April and paused other punitive measures. Earlier this month, they agreed to extend the tariff truce for another 90 days. Any easing of geopolitical tensions helps draw money back into Chinese equities by lowering the risk premiums, said Eugene Hsiao, equity analyst at Macquarie. While certain strategic goods such as semiconductors could face additional tariffs or trade curbs, the U.S. has extended the temporary truce until November, so tensions have not heightened as much as markets feared, said Raymond Cheng, chief investment officer at Standard Chartered. “If I feel a little bit better this year than last year, with the economy and the stock market doing okay … Why don’t I put [some of the money] back?” said HSBC’s Van der Linde, explaining Chinese investors’ thinking. This improved sentiment is encouraging rotation out of Chinese government bonds and into equities, experts said, as retail investors moved away from safe, low-yielding debt into stocks. While not quite dramatic, the 10-year China bond yield has risen 6 basis points since the U.S.-China trade truce extension was announced on Aug. 11. Rotation from bonds and savings is a major driver of the recent onshore market fuel, said Morgan Stanley analysts, while citing other factors including increased liquidity and hopes for more policy easing. The investment bank expects the CSI 300 index to hit 4,700 in the near term — a 6% upside from current levels. The onshore bond yield uptick also suggests an improved investor outlook for the long-term macroeconomic outlook in the country, Morgan Stanley analysts wrote in a note. There is also the fear of missing out or FOMO factor at play, with Chinese investors flocking to onshore equity markets as they see Hong Kong shares rallying faster than mainland (A-share) stocks. On a year-to-date basis, the Hang Seng Index has gained over 28%, while the CSI 300 is up about 12%. The mainland A-share market hasn’t risen as much as Hong Kong’s market recently. That makes some investors think the A-share market could be “next in line” to catch up, market veterans told CNBC. “Investors would think that A shares have better possibility for re-rating in the near future,” said Wenjie Ding, investment strategist at China Asset Management. “The A-share market has been lagging behind Hong Kong shares,” she said. ‘Irrational exuberance’? The exuberance of Chinese retail investors contrasts with muted foreign appetite. U.S. hedge funds like Bridgewater Associates pared its China ADR positions in the second quarter, according to a recent filing. In the near-term, FOMO could drive overseas institutional flows back into China, if Chinese equities broadly outperform global benchmarks, forcing underweight global funds to raise their China allocations, said Macquarie’s Hsiao. However, he reiterated that Chinese equities are less driven by foreign flows. For the next stage, investors are eyeing on the fundamentals of the Chinese economy and corporate earnings, said Chaoping Zhu, J.P. Morgan Asset Management’s global market strategist based in Shanghai. He sees the current market rally sustaining into 2026 with some intermittent corrections. The Chinese government has escalated its “anti-involution” campaign, which could help support the profitability of sectors such as steel and solar power industries, he added. China’s anti-involution campaign aims to dissuade industries against destructive price wars to gain market share at the expense of eroding profits. However, Nomura warned of excessive leverage and potential “bubbles” as the stock markets continues to surge even as China’s economy shows signs of weakening in the second half of the year.
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