China Daily | Translating resilience into capital inflows

Unitree Robotics, the humanoid robot maker that captivated audiences at the Spring Festival Gala for two straight years, has now seized the spotlight in a new arena: the capital market. On June 1, its initial public offering application won regulatory approval, making it the first humanoid robotics company to debut on the A-share market.

The company's application was passed in just 73 days. While the Chinese regulators have adopted a tighter grip over IPOs, the unexpected speed for this case has demonstrated the greater importance attached to new economic drivers both from the regulators and market participants, said Yang Zhen, chief engineering researcher from Orient Securities.

As a matter of fact, China's new economic drivers' rising importance in the A-share market has been especially noticeable after a set of supportive measures were introduced since Sept 24, 2024. Technology companies, usually with higher price elasticity, have ushered in a price rally ever since, according to Xun Yugen, chief economist of Guosen Securities.

The comparison between STAR Market 50 Index and the SSE 50 Index may best depict the situation, as the former best represents the hard technology sector and the latter monitors the 50 heavyweights trading at Shanghai Stock Exchange's main board, according to Xun.

Buoyed by the artificial intelligence rise, STAR Market 50 spiked 42.3 percent between July and October last year, significantly overtaking the 10.8 percent increase registered by the SSE 50 Index during the same period.

After the A-share market slid in April, STAR Market 50 Index quickly recovered and refreshed its previous record high with upward momentum. This was mainly fueled by the strong performance of semiconductor, optical component and memory companies. However, the SSE 50 — representation of the old economic engines — has not yet recovered from the downward trend, said Xun.

The disparity did not happen overnight.

In the second quarter of 2021, companies best representing the new economy saw their combined market value overtaking that of old economic engines for the first time. As of May 22, the new economy accounted for 48.4 percent of A-share market's total market cap, compared to 22.3 percent for the old economy. The divergence in trading value is even more pronounced, with the new economy accounting for as much as 57.5 percent of total turnover, versus 15.3 percent for the old economy, according to Guosen Securities.

"Companies specializing in electronics, communication, computer, medicine, defense, automobiles, and consumer services have become important contributors to China's economic growth. In the meantime, companies from the sectors of real estate, basic chemicals and traditional machinery are facing growth challenges," said Xun.

The electronics sector — a key component for the many humanoid robot companies like Unitree — emerged as the most actively traded industry in China's mid-stream manufacturing during the first five months this year. Its monthly trading value had been exceeding 2 trillion yuan ($295 billion) since October 2024, which topped 15 trillion yuan for the first time in May, according to market tracker Wind Info.

New quality productive forces including AI and advanced manufacturing will continue to be the best A-share performers in the second half of the year, according to CITIC Securities.

The prospect of A-share companies' improving profitability has been translated into brokerages' optimism.

Data from first-quarter earnings showed that the overall A-share revenue growth had returned to positive territory, ending the profitability pressure since 2022, according to Cheng Min, vice-general manager of the equities department at Huayin Fund.

The two major technology-focused boards saw particularly explosive results. The average net profits reported by STAR Market companies came at a whopping over 200 percent year-on-year, and that for ChiNext companies reached 20 percent.

At a May press briefing, Meng Lei, UBS Securities China equity strategist, raised his full-year 2026 earnings growth forecast for A-share companies to 11 percent — up from an already optimistic 8 percent forecast at the end of 2025.

Morgan Stanley reached a similar conclusion in their "China AI 2.0" report released in early May. The investment bank noted that "AI adopters" — companies actively integrating artificial intelligence into their operations — have seen their next-12-months earnings per share rise 62 percent over the past two years, dramatically outperforming the broader MSCI China index, which managed just 10 percent growth.

When rising geopolitical tensions and market uncertainties have become a bigger headache for investors around the globe, China assets are of greater value as they are more and more considered "a safe haven".

"Investors all over the world are paying higher premiums for resilience and security amid rising influence of geopolitical tensions. Investment has become more difficult. But all these are the reasons for the revaluation of the Chinese capital market and the related assets," said Li Chunbo, chairman of CITIC Securities International.

Zhu Feng, chief China economist of JPMorgan, explained that China's economic resilience sits on its more diversified energy sources, less dependence on imported oil and gas, and above all, a most complete industrial supply chain in the world.

That resilience has translated into capital flows. According to JPMorgan, overseas funds recorded a net inflow of approximately $13.1 billion into Chinese equity markets year-to-date as of May 15, a scale not seen for years.

Regional and global actively-managed funds have significantly contracted their underweight to China assets since the beginning of the year. Robust overseas capital inflow will further buoy the liquidity in the A-share market, said Zhang Xiaoning, JPMorgan's China equity strategist.

From the company's recent road shows, Zhang has also noticed a shift in international investors' preference over Chinese equities.

"While global funds used to favor the consumption-based internet giants, they are now pivoting to the A-share advanced manufacturing and tech hardware due to the rising focus on energy security and the long-term outlook on the robot sector," she said.

Currently, foreign investors hold approximately 3.5 to 4 percent of total A-share market cap. While medium- to long-term investors have expressed increasing interest in Chinese equities, substantial exposure increases are still in the early stage, according to Thomas Fang, head of China Global Markets at UBS.

"The next five to 10 years will be a 'golden window' for global investors to increase allocations to Chinese assets," he said.

But Unitree's smooth IPO journey should not be mistaken for a regulatory loosening. On the contrary, more than 20 companies have seen their listing reviews come to a halt — most of them voluntarily withdrawn by the issuers or their sponsoring institutions.

Meanwhile, a total of 22 companies had been delisted as of end May. Financial fraud, misappropriation of company funds, and hollowing out of the main businesses are the major reasons for them to be removed from the A-share market.

"This year, delistings have been implemented at a faster pace and with stronger enforcement penetration. The framework of the normalization of delistings has become clearer," said Dong Zhongyun, chief economist at AVIC Securities.

Long-standing market ills such as the speculation of "shell companies" are thus gradually eliminated. A market ecology of "survival of the fittest" is taking shape at an accelerated pace, with low-quality listed companies being weeded out more quickly and more market resources directed to the innovation-driven companies, said Tian Lihui, a finance professor at Nankai University.

Ever since September 2024, central regulators have come up with a set of market stabilizing measures including Central Huijin's purchases of exchange-traded funds, swap facilities for financial institutions introduced by China's central bank, and re-lending for share buybacks.

"The policy package not only curbed short-term irrational fluctuations in the capital market, but also fundamentally reshaped the liquidity transmission mechanism and the valuation ecosystem of A shares. They serve as a 'stabilizer' for the capital market, building a solid base for future fiscal stimulus and domestic demand recovery," said Zhao Wei, chief economist of Shenwan Hongyuan Securities.

"Market-stabilizing measures will no longer be an emergency 'toolkit', but rather normalized and long-term institutional safeguards," he added.

Another major stabilizing force is formed by the continued inflow of long-term capital, including social security funds, insurance and mutual funds.

According to the China Securities Regulatory Commission, the country's top securities watchdog, medium and long-term funds made net A-share purchases over 800 billion yuan in 2025.

Ming Ming, chief economist at CITIC Securities, said that capital inflow from long-term funds will be estimated at the trillion-yuan-level in the next few years, fundamentally reshaping the A-share market's ecosystem and valuation system while securing a solid foundation for asset safety.

"These funds have a discerning eye for new quality productive forces. Their increased market participation will boost market confidence, optimize investor structure, reduce volatility and help core assets return to fair valuations. The overall market stability and resilience will be elevated," he said.

https://www.chinadaily.com.cn/a/202606/15/WS6a2f4fe7a310986e2b45fe04.html