Why investing for income is a good strategy now

A decade ago, this would have been a very different conversation. Chinese equities were sold as growth. The idea of buying stocks for income — just for the yield — wasn't the consensus pitch.

Back then, the baseline expectation was to chase strategies or products yielding somewhere north of 10%. For decades, China’s rapid economic expansion created enormous opportunities to cash in on the secondary market—particularly in the high-flying internet names. In that environment, investing for dividends felt a bit "boring" compared to the hyper-growth happening elsewhere. Plus, the risk-free rate was generous enough that seeking out dividend stocks wasn't an imperative.

That has changed. We are now seeing a convergence of several factors at once:

China’s economy has entered a lower-growth, stabilization phase. In this environment, companies that reliably return capital are worth more than they used to be — the market is gradually pricing that shift.

Meanwhile, the domestic rate backdrop has tilted sharply: China’s 10-year government bond yield has fallen below 2%, a level that was almost unimaginable five years ago. At that rate, a basket of A-shares yielding 4–7% in combined dividend and buyback yield carries a meaningful spread. That’s not lost on domestic institutional investors or on insurance companies structurally seeking income.

Third — and this is the part that probably goes under the radar for most international investors — regulation has mandated it.

As early as 2008, the CSRC mandated that listed companies seeking equity refinancing must have distributed at least 30% of average annual profits as cash dividends over the preceding three years. In December 2023, the CSRC revised its Guideline No. 3 on cash dividends, strengthening disclosure requirements for non-dividend-paying companies, simplifying interim dividend procedures, and encouraging higher payout frequency. In 2024, it went further: the November Guidelines for Listed Companies No. 10 — Market Value Management explicitly charged company boards with actively managing their market capitalization, through dividends, buybacks, investor relations, and M&A. Capital return is now a governance expectation, not a voluntary option.

The results are showing up in the data. Listed onshore Chinese companies (A-shares) paid a record 2.64 trillion yuan in dividends in 2025, surpassing the previous record of 2.4 trillion yuan set in 2024 [*]. Share buybacks have also seen a massive structural leap. In 2025, 1,495 A-share companies initiated share buyback programs, with the cumulative value reaching 142.84 billion yuan.

More importantly, the nature of these buybacks has fundamentally shifted. Moving away from traditional repurchases for employee stock ownership plans, cancellation-oriented buybacks (aimed at reducing share capital) increased markedly. In 2025, over 40% of all buyback plans were intended for full or partial cancellation, up from 38.33% in 2024 (wind).

The policy tailwind has only grown stronger. The 300 billion yuan re-lending facility launched by the PBOC in October 2024 was further optimized in May 2025. It is now part of a combined 800 billion yuan pool (shared with the Securities, Funds, and Insurance companies Swap Facility), specifically designed to provide high-velocity liquidity for buybacks and major shareholder stake increases [*].

This is a coordinated policy push, not a corporate governance fad. The combination of regulatory mandate, suppressed domestic rates, and a conscious SOE pivot toward shareholder return has created a structural backdrop that simply didn't exist in prior China market cycles.

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The quasi floor: A mechanism worth understanding

Here’s something we don’t see getting nearly enough attention in international coverage of China equities.

Under CSRC rules finalized in May 2024 — the Interim Measures for the Administration of Shareholders’ Reductions in Holdings — controlling shareholders and de facto controllers of listed companies are prohibited from reducing their holdings via secondary market transactions if any of the following apply:

• The stock price has fallen below its IPO price

• The stock price has fallen below net asset value per share

• The company has not met dividend standards — specifically, cumulative cash dividends over the prior three years amount to less than 30% of average annual net profit

This creates what we’d call a quasi price floor. Not a hard floor — the state isn’t pledging to buy at a specific level. But a real incentive structure: a controlling shareholder who wants the optionality to monetize their position needs the company’s stock to stay above IPO price and NAV, and, most importantly, needs the company to maintain its dividend. That incentive doesn’t go away.

The practical effect is subtle but real. Companies with genuine cash generation are increasingly motivated to maintain and grow dividends — not purely because regulators want them to, but because their controlling shareholders’ own exit flexibility depends on it.

Instruments to invest in Chinese dividend stocks

In the domestic A-share market, the CSI Dividend Index (000922) serves as the foundational benchmark. By tracking 100 of the most consistent dividend payers—those with at least three consecutive years of distributions—and weighting them by yield, it provides the most direct exposure to the theme. It is the baseline for the "income trade," currently yielding roughly 5.2%.

For the Hong Kong market, Global X Hang Seng High Dividend Yield ETF (03110.HK) is a good direct exposure, now yielding around 5.5%-6.5%.

What’s wrong with the existing benchmarks?

To be fair, these benchmark indices are solid instruments for broad exposure to the theme. Looking at the price history over the past decade, they have generally delivered price returns on par with the CSI 300, with dividends adding an additional layer of outperformance. In a persistent low-rate environment, these remain reasonable tools for asset allocation and income generation.

However, they do carry structural shortcomings that investors should consider:

1. Sector concentration

The CSI Dividend Index is structurally heavy in banks, coal, and energy. These sectors dominate on raw yield metrics: state banks provide consistent payouts, and coal companies have generated enormous cash throughout the recent commodity cycle. But a basket where banks alone can exceed 30% is not a diversified income strategy. Telecom, utilities, industrials, and selected consumer names all have robust dividend-paying businesses that often get systematically underweighted in these frameworks.

2. Over-reliance on “trailing yield” as a screening criterion

A high trailing dividend yield can signal three very different realities: a genuinely high-performing business, a collapsing share price, or a one-off special dividend that won’t recur. Index methodologies (such as the CSI Dividend Index) that place primary weight on trailing yield often fail to distinguish between them.

3. Absence of financial quality filters

Some companies sustain dividends by borrowing—a practice that is a risk, not a feature. Methodologies that don't filter for fundamental indicators—such as free cash flow quality, ROE, or earnings durability—effectively hide balance-sheet risk under an "income" label.

These issues are partially mitigated by more advanced index variants. The CSI Dividend Low Volatility Index (930955), for example, filters for stocks that pair high payouts with low price volatility, acting as a defensive anchor during market turbulence. For investors wary of "value traps," the CSI All Shares Dividend Quality Index (932315) overlays financial health indicators—such as net profit growth and ROE—alongside yields. This ensures that distributions are backed by genuine fundamental strength rather than depleting cash reserves. (This methodology results in much more diversified sector concentration; currently, Food & Beverages, Non-ferrous Metals (15.97%), and Autos occupy the top positions.)

4. Buybacks are excluded entirely

Perhaps the most significant flaw is that buybacks are excluded entirely from all major indices. While this is understandable given that the relevant policy changes are recent, we believe a "mindset shift" is now required: moving from a "dividend-only" view to a Total Shareholder Return (TSR) view.

Buybacks are now a core component of how Chinese companies return value. Indices that screen only for cash dividends miss this shift completely. A company running an aggressive buyback program—which supports the share price and increases earnings per share (EPS)—could be ignored by the index entirely. In the current regime, the old methodology is only looking at half the picture.

For instance, as China’s internet giants transition from hyper-growth stories to mature, cash-generative companies, they have increasingly leaned on buybacks as their primary tool for returning value. Tencent, for example, has committed to a massive share repurchase program in recent years; while its cash dividend yield typically hovers at a modest 1.5% to 2%, its "buyback yield" provides a much more substantial contribution to total shareholder return.

A-share screening: total shareholder yield

To get a more comprehensive picture of what companies are actually returning to shareholders in the A-share market, we conducted a systematic screening exercise. Rather than relying solely on trailing dividend yield — which is how most mainstream dividend indices rank their constituents — we incorporated buyback activity alongside dividends to arrive at a more complete measure of total shareholder yield.

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Last month, we launched Baiguan Pro—our monthly view on Chinese assets, themes, and sectors we are closely following, as well as insights from our own data at BigOne Lab.

Each month, we pair macro data and BigOne Lab’s proprietary indices with a structured, directional read on where Chinese assets stand and what we’re doing about it.

If you haven’t upgraded yet: we’re offering a free upgrade to the Baiguan Pro tier for all existing paid subscribers through the end of Q2. Just reply to this email with the address associated with your subscription.

This Month: Our View on Chinese Assets

Our directional view on China equity allocation remains consistent with last month. Importantly, our proprietary China Resident Risk Appetite Index (CRRAI) shows continued improvement in Chinese households’ risk appetite.

In the March 2026 reading, the CRRAI composite index recorded -0.08, a further recovery from -0.17 in February. This marks several consecutive months of improvement in resident risk appetite, which is now just a fraction away from the 0-line (the historical mean/neutral level).

Recent data also shows that foreign institutional investors’ confidence in allocating capital to Chinese assets has entered a phase of stabilization following the volatility seen in late 2025. While the Sentiment Index for A&H Shares retreated slightly from its March peak of approximately 0.54, it continues to hold steady above the 0.50 neutral threshold, ending April near 0.51.

These data points back up our confidence in Chinese assets.

A-shares still preferred over HK. Three specific reasons: (1) the national team floor mechanism is a genuinely unusual feature with no real global analog; (2) in an elevated geopolitical risk environment, A-shares’ domestic-anchored dynamics offer more insulation from global risk-off moves; (3) the composition of A-shares — AI and tech supply chain, heavy industrials, domestic manufacturers — is a better fit for the China themes we find most compelling right now versus HK.

That said, our team has been increasing exposure to Hong Kong-listed assets.

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On April 1, we officially launched Baiguan Pro, our professional-tier subscription designed for investors seeking deeper, more specific coverage of Chinese equities. Baiguan Pro delivers the Baiguan team’s monthly outlook on overall Chinese equity assets, our quarterly focus on themes and sectors, richer company-level analysis, and follow-ups on the ideas and companies previously presented in the newsletter.

If you missed our launch piece, you can read it:

As a thank-you to our existing paid subscribers, we are offering a complimentary upgrade to Baiguan Pro (offer ends on June 30, 2026). If you’d like to take us up on that, simply reply to this email — we’ll get you sorted.

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In Today’s Data Update

We are updating four sectors that we recently wrote about in the Baiguan newsletter, with BigOne Lab’s proprietary data as of March 2026:

• Sportswear & Footwear: We previously highlighted how the rise of the “athleisure” trend and robust discretionary spending on sports and health in China are driving organic growth.

• Luxury Goods — We previously noted that luxury goods are seeing a gradual comeback in China as sentiment improves among middle-class and affluent consumers. In particular, Laopu Gold and the broader gold jewelry sector deserve close attention.

• Pop Mart — We previously detailed why we believe the IP sector is one of the best business segments in China and discussed Pop Mart’s valuation.

At BigOne Lab, we curate data highlights, analyze them, and deliver insights trusted by 100+ top institutional and corporate clients worldwide.

🔒 The following content is available to Baiguan Pro subscribers.

1. Sportswear & Footwear | March 2026

Bottom line: March growth moderated from the elevated January–February base, but Q1 as a whole delivered meaningful sequential acceleration versus Q4 — particularly for integrated brands and running shoes.

January–February’s strong performance was shaped by a confluence of one-offs: delayed winter demand from a warm December, the Chinese New Year week pull-forward, and Winter Olympics-related brand exposure. As those tailwinds faded, March growth naturally cooled. But stepping back to Q1 as a whole, the sequential improvement over Q4 is real across the board:

FILA’s acceleration to +16% is the standout. Nike remains the outlier — Q1’s -16% shows no meaningful improvement over Q4’s -18%, consistent with continued weakness at the distributor and retail level.

Performance Apparel: Divergence Opening Up

March brought a visible slowdown for Amer Sports: +20% YoY, down from +29% in January–February, with Q1 at +27% versus Q4’s +37%. Descente (+29% in March, broadly in line with Q4’s +31%) and Lululemon (+22%, versus Q4’s +26%) are both holding pace well.

Running Shoes: The Standout Growth Story

Running shoes remain the cleanest high-conviction trend in our sportswear data. Despite a modest March moderation, Q1 figures are striking:

On Running and HOKA both accelerated in Q1 — this is not a base-effect story, it reflects genuine share gains in a Chinese running shoe market that continues to trade up.

2. Laopu Gold & Gold Jewelry | March 2026

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Some of the best investment opportunities of the last several decades came from identifying big paradigm shifts.

The rise of the internet fundamentally changed how people find information (Google), buy stuff (Amazon and Alibaba), and interact with each other (Facebook and Tencent). The rise of mobile internet made Apple into a truly generational company. The demand for a decentralized store of value led to the creation of Bitcoin. The shift from internal combustion engines to electric vehicles and batteries turned Tesla, BYD, and CATL into the industrial behemoths that they are today. The rise of GLP-1 medications made Eli Lilly the world’s first trillion-dollar pharmaceutical company. And do not forget: the intelligence revolution underway right now has made Nvidia the first 4-trillion-dollar company in human history.

By definition, great structural changes take time to take shape. These trillion-dollar changes, affecting the lives of billions of people, do not happen in an instant. Also, by definition, truly great changes happen only rarely.

This means that if you are patient and spend enough time thinking about it, you can identify big opportunities ahead and have enough time to study it and watch it unfold. This is happy news for long-term investors.

Baiguan is a China-focused newsletter and research service. But we have a global perspective, and we are excited about major technological and industrial shifts that affect EVERYONE. After identifying one such shift, we examine which specific companies or industries in China will benefit the most from it.

When we look ahead, we see one area that’s on the cusp of a big fundamental shift again. It’s not an entirely new sector, but its true potential has yet to be realized. It’s the future when we will have fully autonomous smart driving systems.

Sizing the opportunity

Intuitively, having the world run by driverless vehicles sounds BIG. But how big?

In the US alone, roughly 3 trillion miles are driven by passenger vehicles each year. The average cost of ownership in the US is often cited at $0.7- $0.8 per mile, while current ride-hailing costs are typically $2 per mile. This translates into a total addressable market of $2-$6 trillion. (Note that we do not try to forecast the reduction in costs in a fully autonomous world, nor do we forecast the increase in rides either. This is a thought experiment with the intention to visualize the scale of opportunity, not about doing an accurate projection.)

The opportunity in China is also huge. China currently has approximately 366 million registered private passenger vehicles, and various studies indicate that these vehicles average 10,000 kilometers (roughly 6,200 miles) annually. That translates to 2.27 trillion miles driven per year, which is already comparable to the level in the US.

Our own back-of-the-envelope calculation puts the average cost of ownership in China at ~$0.45/mile, while ride-hailing costs are much lower than in the US, at ~$0.6-0.7/mile. Overall, the total addressable market for China’s robotaxi is around $1.2 trillion - $1.6 trillion.

It’s noticeable that the TAM for robotaxis in China looks smaller than in the US, reflecting lower car ownership per capita and lower labor costs. However, both of these factors have strong secular tailwinds that will help them grow faster in China, making it possible for the final market size in China to be larger than the US.

And for this exercise, we haven’t even factored in the size of the opportunity for the rest of the world, which is conceivably larger than US + China combined.

We are almost ready - technologically, economically, and culturally

All of this market-sizing exercise won’t mean a thing if the underlying tech isn’t ready. But what we observe is that the technology is no longer just on paper; it is now in daily operations and is fast approaching maturity worldwide.

In the US, Waymo is currently running at a run rate of 500,000 paid rides per week across more than 10 US cities. And estimates put Waymo’s market share in San Francisco’s operating zone, one of its earliest, already surpassing Lyft's.

When consumers actually experience a mature robotaxi service, the feedback is overwhelmingly positive. According to Waymo’s own rider surveys, an impressive 93% of their customers reported satisfaction with their rides, often citing the smooth driving style and the privacy of an empty cabin as key benefits. More tellingly, reports have surfaced of Uber users actively canceling rides when assigned a human driver if a Waymo vehicle is available as an alternative in cities where the service is integrated.

In China, the scale of deployment is equally aggressive, if not more. Baidu’s Apollo Go, one of the country’s largest operators, recently reported a peak of over 300,000 fully driverless weekly rides in Q4 2025, surpassing 20 million cumulative rides globally across 26 cities, and the company has announced it achieved per-vehicle profitability there late last year. Meanwhile, competitors like Pony.ai and WeRide have both pushed their global fleets past the 1,000-vehicle mark, with Pony.ai targeting over 3,000 robotaxis across 20 cities by the end of 2026.

A growing body of data also suggests that Chinese consumers are increasingly open to, and in some cases prefer, autonomous driving over human-driven vehicles. In China, the acceptance rate is particularly high. A 2025 McKinsey survey found that Chinese consumers show a significantly higher willingness to pay for autonomous features than their Western counterparts, with many citing safety and convenience as the primary drivers. Furthermore, a report by Rest of World highlighted that an overwhelming 85% of Chinese consumers expressed comfort with the idea of riding in a fully autonomous vehicle, a stark contrast to the persistent skepticism often seen in the US.

Our personal experiences point in the same direction. When test-riding Pony.ai’s robotaxis in Pudong, Shanghai, in preparation for a part of the upcoming Baiguan China Tour, we found the experience exceeded our expectations. The driverless vehicles are both fast and smooth in complicated situations. We left with the sense that we would prefer riding in a robotaxi to riding with human drivers. (You can also check out Amber’s experience with Baidu Apollo Go in Wuhan last year.)

Robotaxi just feels inevitable.

The main bottleneck

A May 2025 report by Goldman Sachs forecast that China’s robotaxi fleet would grow more than tenfold from approximately 4,000 vehicles in 2025 to roughly 500,000 by 2030. Looking further ahead. They also projected that the fleet could grow to 1.9 million vehicles by 2035, achieving a 25% penetration of the entire ride-hailing market.

These figures sound impressive. However, we couldn’t help but wonder, should it not be happening faster? 500,000 vehicles in 5 years sounds very conservative, given it’s a tiny fraction (~0.1%) of all passenger vehicles running on the road in China today, and the fact that technology seems almost ready now.

We believe two crucial factors are holding back the industry from realizing its full potential in China, and they are two sides of the same coin: low labor costs and labor-related political concerns.

Chinese regulations regarding robotaxis have shown two faces at once. On the one hand, local governments across the country are aggressively approving pilot zones. Baidu Apollo Go alone has entered around ~20 cities in China by the end of 2025.

Yet at the same time, all of the pilot zones are exactly what their names suggest: pilot zones, areas with light traffic and far away from population centers. In Baidu’s stronghold city of Wuhan, for example, after years of expansion, the pilot zone still covers only the area surrounding the main population center. In Shanghai, most pilot zones are located in the suburbs, which take at least 1 or 2 hours to reach from the city center.

This contrasts sharply with the US, where Waymo already covers the entire Bay Area, from San Francisco to San Jose.

We believe road-safety concerns related to China’s much more complex road environment can only partially explain the gap here.

When we look at the robotaxi in China, we cannot ignore the huge elephant in the room: China currently has an unemployment issue. There is currently an oversupply of low-skill labor. This affects the robotaxi market from two vectors.

First of all, at ~$0.7/mile, China’s ride-hailing cost is low, making robotaxi services a less compelling economic choice than they are in the US. On the other hand, the Chinese government sees social stability as a top policy priority, so allowing driverless services to grow unchecked will add further fuel to the more pressing fire. In the meantime, Beijing does not want to fall behind the US in this strategic sector. Therefore, it is juggling between policy priorities here by allowing more and more “pilots” in a low-key manner, without pulling the real trigger.

This labor and policy bottleneck is what we think would hold China back from realizing the full potential of robotaxi in the next few years. Within the next 5 years, we do not expect explosive growth in this sector. But as China’s population is on a guaranteed path of aging, we could see a drastic switch towards autonomous and an explosive inflection point, possibly in the 5-10 year timeframe.

We thus remind you that you should not expect this research piece to yield a near-term result, but rather to prepare you psychologically for one of the biggest long-term trends.

Four main areas to watch

With the context set, evaluating how to capitalize on this trend requires analyzing four distinct investment directions:

• L4 companies (Pony.ai, Baidu, etc.)

• OEMs (Xpeng, Nio, etc.)

• ride-hailing platforms (Didi, Gaode, etc.)

• picks-and-shovels component providers (Hesai, Horizon Robotics, etc)

We do not like all of them. In fact, many of them may become value traps despite the immense opportunity in this sector. In the section below reserved for Baiguan Pro subscribers, we will dive deeper.

[Once again, for existing Baiguan paid subscribers: We are offering you a free upgrade, giving you full access to all Baiguan Pro content. To upgrade, please REPLY to this email with the email address associated with your paid subscription, or send an email to baiguan@bigonelab.com. We are processing these upgrades manually through the end of the second quarter (June 30).

Please note that if you opt-in to the Baiguan Pro tier, your subscription will renew at the new rate if auto-renewal is enabled.]

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We have something new to share.

We’re launching Baiguan Pro this April.

Here’s why, and what’s inside the first issue.

Why we built this

Have you ever read a Baiguan piece introducing a phenomenal company — be it Pop Mart, Laopu Gold, others, and thought — Okay, I hope I can know how this company performs from now on. Or, have you ever read a piece about China’s service sector, experiential spending, or robotaxi industry, and wondered, but what is the Baiguan team actually doing with this?

We get these questions a lot.

Over three years of writing the newsletter, we’ve noticed our readers split into two groups. One group loves the broader China observations — the cultural context, the business stories, the macro backdrop. But there’s another group that keeps asking a more specific question: I’m bullish on China after reading you. Now what do I actually do? (There are overlaps, of course.)

Baiguan Pro is for the second group.

Here’s what we’ve realized: we’ve flagged a lot of companies, sectors, and themes in the newsletter, and readers have told us they want the follow-through. Not just the observation, but the investment thinking behind it.

We also sit on a lot of data. Baiguan has some of the best ground-level macro, consumer, and sentiment data on China out there. But data alone doesn’t tell you what to do. In Baiguan Pro, we’ll pair our data with a more structured, directional view — what we’re watching, and why.

One more thing that shapes how we think: everyone on the Baiguan team manages their own global, multi-asset portfolios. We’re not single-country analysts. That means when we look at China, we’re always looking at it in context — what else is on the table, what the opportunity cost is, how an international allocator actually thinks about an allocation decision. That global frame is built into how we write Baiguan Pro.

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What to expect

Baiguan Pro has a consistent content structure, so you always know what’s coming:

Monthly View on Chinese Assets — Each month, we pull together macro data, BigOne Lab (Baiguan’s parent company)’s proprietary data and indices, and the relevant policy backdrop to give you a structured read on where Chinese assets stand. The goal is to cut through noise and give you a directional view, backed by data.

Quarterly Theme Focus List — Every quarter, we identify the sectors, themes, and idiosyncratic opportunities we think are worth paying attention to for the next three months. This isn’t a buy list — we flag both opportunities and risks, both longs and shorts. We flag what’s interesting and why, and we’re equally willing to tell you when something looks stretched or when the consensus narrative seems wrong.

Follow-Up & Deep Dives — For themes on our quarterly list, we follow through: deep dives into industries or companies, BigOne Lab’s own data on specific trends, and the occasional company or story that’s just too “meme” to ignore.

Baiguan Data Highlights — Data insights feeds from BigOne Lab’s industry analyst team, shared with our institutional clients.

Occasional Commentary — When something happens in the market that actually matters, we’ll write about it. Brief, direct, no fluff.

Baiguan Pro is available as an upgrade via Baiguan Professional Tier (Founding Member).

For existing Baiguan free subscribers: nothing changes with your current subscription. We’ll continue covering China broadly in the newsletter — context, culture, business, macro — and we plan to expand that coverage further over time.

For existing Baiguan paid subscribers: We are offering an upgrade to the Professional tier, giving you full access to all Baiguan Pro content. To upgrade, please REPLY to this email with the email address associated with your paid subscription. We are processing these upgrades manually through the end of the second quarter (June 30). (Please note that if you opt-in to the Baiguan Pro tier, your subscription will renew at the new rate if auto-renewal is enabled.)

This Month: Our View on Chinese Assets

First, we believe China is meaningfully underweight in ACWI relative to its economic footprint, and we think that gap has overshot. The discount is understandable historically, but the risk/reward of adding from here is better than consensus implies.

We prefer A-shares over HK, currently — Three specific reasons: (1) the national team floor mechanism is a genuinely unusual feature with no real global analog; (2) in an elevated geopolitical risk environment (Iran conflict backdrop), A-shares’ domestic-anchored dynamics make them more uncorrelated with global risk-off moves; (3) the composition of A-shares — AI/tech supply chain, heavy industrials, domestic manufacturers etc. — is a better fit for the China themes we find most interesting right now versus the HK.

Our team’s directional view on China equity allocation is currently overweight relative to the MSCI All Country World Index (ACWI) index.

A few specifics driving that view:

Chinese equities (and broader markets) have had a choppy start to 2026. After a meaningful recovery in late 2024 and into 2025, driven by policy support and a wave of improving sentiment, the market is now in a more discerning phase — one where fundamentals are doing more of the work. Last year’s recovery captured much of the easy re-rating.

Fundamentals — we are seeing an improving trajectory. Our proprietary China Resident Risk Appetite Index (CRRAI) showed improvement in January and February.

* CRRAI quantifies Chinese household financial confidence and risk-taking appetite, and consists of the following components.

• Macro & Business Confidence (15%): Tracks liquidity and growth using M1-M2 spreads, government bond yields, and PMI data.

• Household Leverage & Credit (35%): Measures willingness to borrow, mortgage/consumer loan growth, and deposit trends.

• Real Economy Foundations (35%): Monitors asset values and income security through second-hand housing prices, transaction volume, and employment.

• Capital Market Sentiment (15%): Captures “animal spirits” via financing ratios, valuations (P/E), trading intensity, and new account openings.

All indicators Z-score standardized against the 2014–2026 history.

Valuation — not expensive, not a screaming buy. China is not uniformly cheap anymore after the recovery since 2025, but it still offers reasonable value.

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Sentiment

1. Retail Sentiment Index

Data is sourced from China’s major retail stock communities, with high-frequency, full-spectrum tracking of individual investors’ sentiment toward specific Chinese assets and the broader market. The sentiment index is constructed by fitting post-level semantic analysis, discussion volume, posting frequency, and directional (bullish/bearish) tone.

Historical analysis shows that every time the index reaches a standard-deviation extreme, the market has subsequently experienced a mean-reverting correction—either cooling from excessive optimism or warming from excessive pessimism.

Since the onset of the US-Iran conflict through early March, A-shares have demonstrated notable resilience relative to other emerging markets. Retail sentiment indicators are now flashing clear signs of a rebound. Drilling into the sub-components, investor enthusiasm for hard technology, upstream resources, and cyclical sectors has risen sharply during the period. At the same time, previously underperforming segments have shown no further deterioration; the positive and negative forces have largely offset each other, resulting in an overall improvement in market sentiment.

2. Retail Sensitivity to Sino-US Relations

Since the second U.S.-China tariff conflict of 2025, A-shares have traded steadily with limited volatility. On the sentiment side, retail investors’ sensitivity has been markedly lower than during the April tariff clash. Despite extensive media coverage, individual investors’ attention in the stock market has not escalated into extremes. More recently, the expected Xi-Trump summit has triggered a modest sentiment rebound, though the magnitude remains notably restrained.

3. Institutional Sentiment Index

Data is sourced from research reports from a selection of top global investment banks. The tracking monitors their analyses of capital flows into Chinese assets, macro policy outlooks, sector-level developments, and individual stock perspectives, while identifying shifts in cross-border asset allocation toward China, directional sentiment (bullish/bearish), and overall market confidence levels.

Recent data shows that foreign institutional investors’ confidence in allocating capital to Chinese assets has risen sharply. Sector and stock-specific outlooks are gradually improving, and views on China’s macroeconomic stability remain solidly positive.

Wildcards: The escalation of the Iran conflict has rattled Asian markets, but not all of Asia is equally exposed. China actually sits in a more defensive position, holding large strategic and commercial oil reserves that help cushion short-term disruptions. It has also spent years diversifying its supply toward Russia and Central Asia.

In contrast, Japan relies on the Middle East for roughly 90% of its crude oil imports. South Korea sources about 70% of its crude from the region and routes over 95% of that through the Strait of Hormuz.

We think A-shares carry a structural cushion that most markets lack: the “national team” actively intervenes when needed, reducing correlation to external shocks in ways that are hard to replicate elsewhere in the region.

Despite its cushions, a sustained surge in oil prices will inevitably weigh on China’s economic fundamentals and industrial margins. Global hyper-inflation will erode household spending power worldwide. Even if China remains stable domestically, its export engine will stall as demand from its primary global customers collapses.

Therefore, while China currently appears more resilient than its neighbors, a significant escalation—specifically the introduction of ground troops or the transition into a protracted war—would fundamentally sour our short-term outlook on the Chinese market.

Q2 Themes We’re Watching

These are the areas we plan to cover in depth over the course of Q2.

Shareholder return & dividends

Chinese companies — particularly SOEs and large-caps — have meaningfully accelerated buybacks and dividends over the past 18 months. This is a structural shift, not a one-off. In an environment where earnings growth can be uncertain, capital returns provide a floor. To be frank, Chinese equities are less about high-flying growth or “moonshot” stories like U.S. tech. Much of the investment value — and a large portion of the economy — is concentrated in dividend-paying large-cap companies. In the current rate environment, yield becomes even more relevant.

However, many popular dividend indices are heavily tilted toward banks and energy companies, which carry increasing risks after the rally.

We’re building a more balanced, focused list of names where the yield is real, the balance sheet supports continuation, and the stock isn’t already priced for it.

Robotaxi

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