From boom-bust to slow and stable bull market

Please find below our latest thoughts on China:

• China A-shares clocked up another month of decent returns in May, bringing year-to-date performance to around 10% in USD terms.¹
• That may sound unremarkable at first glance – but it extends a run of strong returns, following double-digit gains in both 2024 and 2025.²
• What is especially notable is not just the returns, but the clear change in the character of the market.
• In the past, China A-shares were frequently characterised by sharp rallies followed by equally sharp pullbacks. Today, that stop-start pattern is increasingly giving way to a more measured, controlled trajectory.

• The data reinforces this shift. The implied volatility of the CSI 300, China’s closest equivalent to the S&P 500, has been lower than the VIX Index for much of this period.³
• Even when geopolitical tensions escalated in March, driven by developments in the Middle East, CSI 300 volatility remained well below that of major global indices.⁴
• In our view, this is unlikely to be a coincidence. There have been deliberate efforts to contain volatility and promote a more stable market environment.
• One visible component has been the activity of the so-called “national team”, which stepped in to buy domestic ETFs in size during 2024, helping to put a floor under the market.
• More recently, these ETFs positions have been largely unwound to prevent excessive “froth” from building.
• But the story goes beyond tactical interventions. Structural forces are now playing a much bigger role.
• For many years, China’s strong macro growth failed to translate into consistent returns for equity investors, in part due to persistent dilution.
• Historically, the A-share market was characterised by a relentless supply of equity. Between 2010 and 2025, the number of listed companies nearly tripled, compounded by substantial secondary issuance.⁵

• That dynamic has now shifted meaningfully. Over the past two years, equity supply has been deliberately curtailed. The bar for IPO eligibility has been raised materially and stricter oversight has also curtailed other forms of issuance.
• The numbers illustrate the extent of the change. In both 2024 and 2025, IPO activity fell to just over 100 listings per year, compared to more than 500 IPOs at the peak in 2021.⁶
• At the same time, the other side of the equation has strengthened. Dividends and share buybacks have picked up materially, supported by explicit regulatory encouragement for companies to return more cash to shareholders.
• As a result, in 2025 equity demand – through dividend payments and share buybacks – exceeded new supply by RMB 1.9 trillion (c. USD 275 billion).⁷
• In other words, a market that was once dominated by capital raising is increasingly being defined by capital return.
• This more balanced and structurally supportive backdrop is further reinforced by efforts to attract longer-term, “patient” capital. Insurance allocations to domestic equities have been rising steadily, supported by dividend yields exceeding bond yields.
• Looking at the bigger picture, we see clear policy motivations behind this shift. In the near term, a more stable equity market can help offset the negative wealth effects of the property downturn, supporting income and gradually repairing household balance sheets.
• Over the longer term, the development of capital markets is also essential to building a more robust pension system. Today, pension assets in China amount to only around 12% of GDP – well below the OECD average of 95%.⁸
• So what does this mean for global investors? Diversification is widely discussed in today’s uncertain and unpredictable environment, but remains difficult to achieve in practice.
• However, if China A-shares are indeed evolving into an asset class moving to a different beat, shaped by a distinct investor base and policy framework, they can provide a differentiated source of returns within global equity allocations.
• Combined with already low correlations, this creates the potential for more resilient portfolio construction, particularly in periods of heightened global volatility.
• This is particularly relevant given that most emerging-market indices remain heavily skewed towards offshore China, leaving A-shares under-represented despite their increasingly differentiated return drivers. 

¹ Source: Bloomberg as at 1 June 2026
² Source: Bloomberg as at 1 June 2026
³ Source: Bloomberg, Wind as at 26 May 2026
⁴ Source: UBS as at 19 May 2026
⁵ Source: Wind as at 31 December 2025
⁶ Source: Wind as at 31 December 2025
⁷ Source: UBS as at 19 May 2026
⁸ Source: UBS as at 19 May 2026