In a surprising shift, China’s stock market is leaving Wall Street behind. So far in 2025, the MSCI China Index has surged nearly 20%, while the S&P 500 has slipped by close to 2%. As U.S. markets wobble under erratic trade policy and political uncertainty, investors are finding a more stable environment and growing opportunities in China.

Traditionally, China has not been viewed as a stable or predictable market, often clouded by regulatory shocks and geopolitical risks. But that perception is beginning to shift. Some investors are now referencing a “Xi Put”, a growing belief that Beijing will step in to support growth and stabilize markets when needed. This renewed confidence stems from clear policy signals, deeper stimulus efforts, and a visible rebound in consumer spending and tech sector momentum. And for now, it appears that some investors are placing more faith in Beijing’s policy than in Washington’s.

China’s Market Comeback in 2025

The gap in performance between Chinese and U.S. markets in 2025 is hard to ignore. While U.S. equities are showing signs of strain, Chinese markets are staging a strong rebound, led by policy support, rising confidence, and a renewed global interest in undervalued assets.

Here’s how the year-to-date returns stack up across major indexes:

The rally, especially in Hong Kong and large-cap mainland stocks, reflects a belief that Chinese equities have finally bottomed out. Valuations remain low, policy support is ramping up, and sentiment is shifting. Global investment firms like Goldman Sachs, Morgan Stanley, Citi, and UBS have all recently raised their outlook for Chinese stocks, pointing to better fundamentals and attractive pricing.

From AI to Consumer Rebound

While Chinese tech stocks, led by the rise of AI giant DeepSeek, have powered much of the rally, the gains are broadening. Meanwhile, Beijing announced plans to increase household income, strengthen the minimum wage mechanism, stabilize housing and stock markets, and introduce family-friendly policies to boost birth rates. That’s helping shift the story from a short-term rebound to a more long-term reform.

According to Barron’s, the MSCI China Index has a forward price-to-earnings (P/E) ratio of 12 over the next 12 months, compared to 22 for the S&P 500. That makes Chinese stocks look compelling to those seeking growth at a discount.

Policy Stability Over Trade Turbulence

While China is signaling steady support, the U.S. is heading into murkier territory. President Donald Trump’s return to office has reignited fears of a chaotic trade policy. His back-and-forth on tariffs is injecting volatility into American markets and raising concerns about corporate earnings.

While global markets may continue to face volatility due to tariff concerns, China’s ability to roll out responsive policies to manage uncertainty is seen as a key driver behind the recent rise in Chinese equities. The result? Capital is drifting toward perceived predictability.

According to a metric from BNY Mellon that tracks global institutional investor flows, Chinese equities have seen net inflows for three consecutive weeks. As of the week of early March, the volume of inflows reached the highest level since February 2023.

According to Wang Ying, Chief China Equity Strategist at Morgan Stanley, the investment story in China is shifting. “This is the best time for global investors to increase exposure to Chinese stocks,” she said in a recent interview. What stands out now is how companies are behaving. Despite economic pressure, many leading Chinese firms are prioritizing shareholder returns, cutting costs, and actively buying back shares.

Wang points to three main drivers of the recovery: better corporate governance and smarter capital use; stronger government backing for private businesses, highlighted by recent support at a major forum attended by tech giants like Alibaba; and a fresh wave of innovation, especially in AI, humanoid robots, and autonomous driving, which makes global investors take a second look at China’s long-term potential.

Still Early to Make a Conclusion

Despite the rebound, foreign ownership of Chinese equities remains far below the 2020–2021 peaks. Many active funds are still watching from the sidelines, waiting for more evidence of macro stabilization and a reduction in geopolitical tensions.

But optimism is building. UBS remains bullish on both A-shares and Hong Kong stocks. “Valuations, liquidity, and institutional positioning still favor China,” said UBS strategist Fang Dongming. Citi’s global strategist Dirk Willer echoed that view, pointing to DeepSeek’s AI breakthrough and low valuations as reasons to believe in further upside.