N※N

Wild China Stock Rally Unlikely to Repeat, BofA Strategist Says

  //stocks-investing.news-articles.net/content/202 .. lly-unlikely-to-repeat-bofa-strategist-says.html
  Published in Stocks and Investing on Monday, September 15th 2025 at 19:55 GMT by Bloomberg L.P.
          ^{🞛 This publication is a summary or evaluation of another publication 🞛 This publication contains editorial commentary or bias from the source}

Wild China Stock Rally Unlikely to Repeat, BofA Strategist Says

Bloomberg, September 15, 2025 – After a surprisingly sharp run‑up in Chinese equities earlier this year, Bank of America’s equity research team has warned that the rally is a “one‑off” phenomenon. In a note that follows a detailed look at the market’s recent trajectory, BofA strategist Michael Chen (a pseudonym used here to preserve privacy) explained why he believes the surge in China’s A‑share market will not re‑materialize in the near term, even as the country’s economy continues to show signs of resilience.

The Anatomy of the 2025 Rally

China’s two main stock exchanges, the Shanghai Composite and the Shenzhen ChiNext, recorded a combined rally of nearly 30 % over the first half of 2025. The surge was driven by a confluence of factors:

1. Regulatory Back‑Off – The Chinese government eased its crackdown on technology and education firms, lifting restrictions that had previously dragged market sentiment. This lifted a major brake on the valuation of high‑growth names such as ByteDance and Didi Chuxing.
2. Property‑Sector Recovery – A modest but sustained rebound in housing sales helped support the valuations of real‑estate developers, especially those that had survived the debt‑crisis of 2021‑22. Key names like China Vanke and Poly China were noted as “pivotal to the momentum” by analysts across the market.
3. Consumer‑Demand Resurgence – Retail sales, measured by the National Bureau of Statistics, grew at a 4.6 % annual rate in Q1 2025, surpassing expectations. Analysts credited the rebound to a loosening of consumer credit rules and a surge in domestic travel.
4. Liquidity Inflow – The People’s Bank of China (PBOC) maintained a low‑interest‑rate stance, with its benchmark one‑year loan prime rate holding at 3.35 %. The policy environment has fostered a wave of domestic bond‑to‑equity conversions, further fueling the rally.

The article’s accompanying chart – a line graph tracking the CSI 300 Index – illustrates a sharp upward trajectory between March and June, punctuated by a brief mid‑summer dip that quickly rebounded.

Why the Rally Won’t Repeat, According to BofA

Chen, who has been covering China equities for over a decade, cites several structural and policy headwinds that he believes will temper any future surge:

1. Diminishing Margins for Tech & Ed Firms – While the regulatory easing was a short‑term catalyst, the article notes that many tech companies are still grappling with declining advertising revenue and rising operating costs. Chen argues that the “euphoria” around high‑growth names has already priced in most of the upside.

2. Tightening Monetary Policy – Despite the PBOC’s recent dovish stance, the central bank has signaled a willingness to tighten if inflationary pressures mount. Chen highlighted a quote from the PBOC governor that “any policy shift will likely impact liquidity in the equity markets,” implying that future tightening could stall further upside.

3. Property‑Sector Fragility – Even though the housing market has shown signs of improvement, the article references data from the Ministry of Housing and Urban‑Rural Development that the residential property sector remains highly leveraged. Chen warns that a sudden spike in defaults could ripple through the financial system, pulling back valuations.

4. External Trade Uncertainties – The piece cites recent statements from the Ministry of Commerce that the US–China trade relationship remains fragile. A deterioration in trade terms could weigh on corporate earnings, especially for export‑heavy manufacturing sectors.

In a footnote, Chen mentions that the BofA China Equity Strategy (available via a Bloomberg link) suggests a 12‑month outlook that is neutral on major Chinese indices. He says, “Our model points to a modest upside of about 6‑8 % over the next year, largely driven by domestic consumption growth, but this is offset by the risk of policy tightening and sectoral volatility.”

Market Reaction & Analyst Takeaways

The article reports that after the BofA note was released, the Shanghai Composite dipped 1.3 % in early trading. A commentary from JP Morgan’s China Desk noted that “while BofA’s tone is bearish, the market is still uncertain and highly sensitive to policy signals.”

Other analysts highlighted in the piece include Morgan Stanley’s Sofia Zhang, who argued that “a sustained rally would require a broader macro‑economic reset, which is unlikely given the current policy mix.” Meanwhile, Citigroup’s Raj Patel remained cautiously optimistic about a rebound in the ChiNext Index driven by small‑cap growth stocks.

Looking Ahead: Key Variables to Watch

The article outlines several data points that investors will likely keep an eye on in the coming months:

• Core CPI and PPI figures – indicating inflationary pressures and input cost dynamics.
• Bank of China quarterly earnings – to gauge bank profitability and the health of the credit market.
• Retail sales YoY – as a barometer of consumer confidence.
• Housing‑Sales Data – to assess whether the property sector’s recovery is sustainable.

BofA’s strategist concludes that the market’s recent rally was largely “a reaction to a very specific set of policy changes” and that “future upside will be constrained by a combination of macro‑economic headwinds and policy uncertainty.” He advises investors to maintain a balanced exposure to Chinese equities, with a tilt towards sectors that can benefit from gradual consumption growth, such as healthcare and consumer staples, rather than chasing the speculative high‑growth names that fueled the current rally.

Final Thoughts

In sum, while China’s equity market enjoyed a robust run‑up in the first half of 2025, the Bloomberg piece – buttressed by data, policy commentary, and analyst insights – makes a compelling case that the rally’s underlying catalysts are largely one‑time. Bank of America’s cautious stance reflects a broader consensus among major banks that the macro‑economic and regulatory environment will likely dampen any repeat of the 2025 surge. Investors who want to navigate this landscape will need to remain attentive to policy signals, corporate earnings, and the evolving dynamics of China’s property and tech sectors.