Five structural forces that could extend China's "Quiet Bull" into a generational shift
The triple storm in 2022 has turned into triple tailwinds
China’s capital market is entering a bull market, but not many people are talking about it. In the offshore market in Hong Kong, the Hang Seng Index has already returned close to 30% for the year, ranking among the best-performing markets this year. The onshore A share market has been muted for a while, but the Shanghai Composite Stock Index has recently broken out to reach the highest level in 10 years, and we are only ~30% away from the highest point in 18 years.
In our Discord community, members have been discussing how this “bull” must have been the quietest bull in our memory. Indeed, as
just observed in our latest article, the retail sentiment this time seems to be remarkably subdued.[Baiguan’s Discord community is accessible for our hundreds of paying subscribers only. After you subscribe, you will receive an email with the invitation link.]
So how do we understand this “Quiet Bull”? Amber’s article did a great job at explaining the liquidity and sentiment drivers behind it, but how do we assess the magnitude of its momentum and the length of its runway?
I believe this bull market has at least five strong long-term tailwinds supporting it. Among them, three are switched from what used to be a triple-storm that brought the market to its bottom in the first place, and two are new forces that have only recently begun to take shape.
Let’s talk about them one by one.
The triple storm of 2022
Dialing back to 2022, China’s capital market entered into not just one storm, but a perfect storm of three.
First, 2022 marked the year when geopolitical tensions for China dramatically deepened. As the Ukraine War broke out, a sudden knee-jerk reaction regarding the Taiwan Strait kicked in. As Nancy Pelosi visited Taiwan, the brewing tension between China and the US suddenly turned ideological, and the risks for foreign investors suddenly became binary.
Second, a series of policy decisions wrecked investor confidence. The most prominent example was the “double-reduction” crackdown on the after-school tutoring sector that wiped out tens of billions of value in one stroke. The zero-COVID policy and Shanghai lockdown were also extremely controversial, and despite my empathy for the policy rationale, the end result was far from happy.
Finally, a special policy decision was the self-detonation of China’s real estate sector. It started with the “three red lines“ announced in late 2020, whose real effect was only felt in the later years. Although I believe this policy is correct in the long term, and I applaud leadership’s courage to take it on, there is no denying that shutting down a core economic engine, while other storms were also blowing, made the situation much worse.
This triple storm took China’s market, both offshore and onshore, racing to the bottom. In March 2022, JP Morgan’s analysts screamed: China is uninvestable! And the label stuck for at least 3 years, destroying confidence and sending the market to one new low after another.
However, fast forward to today, all of the triple storms have turned into tailwinds.
Tailwind 1: Geopolitical tension is dramatically easing for China
2025 is supposed to be a big geopolitical year of struggle for China. As Trump re-entered the White House and launched Trade War 2.0, China was bracing for impact.
It turns out, China has played this game masterfully by responding with strong and speedy tit-for-tats and by putting to good use strategic leverage like rare earth metals. It appears that Trump has simply given up on squeezing China, but shifting attention to weaker targets like India, while the tariffs on China have been paused again and again. Even export controls are loosening.
The whole episode has shown one thing: no longer is China a junior party that could be squeezed at will, but a true counterparty on an equal footing.
Three more developments are further loosening the geopolitical pressure.
First, technological advancements in China, as represented by the “DeepSeek Moment” and rumors around China’s latest advancements in advanced chipmaking, show that the moment for China to break the remaining strongholds of so-called “stranglehold technologies” may come much sooner than previously believed. It appears that a key strategic leverage that the US holds over China will crumble soon, if not already.
Second, following the Alaska summit between Trump and Putin and the subsequent “schoolmaster session” in the White House with European leaders, it appears that a final settlement for the Ukraine War is nearing, thereby alleviating China of the geopolitical pressure that has been mounting since the war's outbreak.
Even the situation in Taiwan turns out to be much more accommodating than feared, and it’s not just because Trump seems to fall out with Taiwan. The total fiasco of the pro-independence DPP’s recall vote gambit (an event that has been severely under-reported by the Western media despite its significance), together with the surprising popularity of a pro-China influencer, shows to a surprised world a real, non-zero chance of a peaceful and negotiated reunification. At the very least, many basic assumptions about Taiwan are being reset because of these new developments.