AI Optimism To Retail Investors Push: Three Factors Fuelling China's Stock Market Rally

China’s stock market is seeing a notable rally this year, defying the underlying economic concerns, with the surge fuelled primarily by a potent mix of AI optimism, a strong push from domestic retail investors, and strategic government policy supporting technology self-sufficiency.

This very momentum has drawn significant interest from both foreign and domestic capital, driving key indices like the CSI 300 and the Hang Seng Tech Index sharply upward.

The two benchmarks — Shanghai Composite and Hang Sang Index — are outperforming Asian peers. The Shanghai Composite is up 14% year-to-date presently, and had hit a decade-high earlier this month. The Hang Seng Index has given returns in excess of 33% in 2025 so far.

Among sectoral indices, the Hang Seng Tech Index hitting its highest level in nearly four years on renewed confidence that big bets on AI will pay off. Companies across the tech spectrum, from chipmakers like Cambricon Technologies to e-commerce giants like Alibaba, are visibly accelerating their AI spending and product rollouts.

This optimism is driven by advancements in domestic AI models, creating a fresh wave of investment in computing infrastructure and hardware, a trend backed by substantial strategic corporate spending.

Simultaneously, the rally has been supported by the noticeable surge in retail investor participation. The lack of high-yield alternatives in a low-interest-rate environment has spurred a shift of household savings. These savings are reportedly up to $22 trillion, out of bank deposits and wealth management products and into equities.

This surge in retail activity is backed by an increase in new trading account openings and margin trading. This has injected fresh liquidity and momentum into the market, particularly in high-growth, AI-related shares.

The third element that is supporting the gains is strategic government backing and policy stability. Beijing’s relentless drive to achieve technological self-sufficiency and reduce reliance on foreign suppliers has significantly boosted investor confidence in home-grown tech firms, according to analysts.

"The policymakers felt that they need to do something to refocus the government work on economic growth rather than minimize risk," CNBC reported Hao Hong, CIO at Lotus Asset Management, as saying.

Policy announcements, including efforts to regulate "disorderly price-cutting" in sectors with overcapacity often referred to as "anti-involution" are generating optimism that corporate prices and margins may be restored, analysts pointed out.