China has won back global funds in a banner year for stocks, with investors anticipating further gains on the country’s AI prowess and resilience amid US tensions.

Global fund managers Amundi SA, BNP Paribas Asset Management, Fidelity International and Man Group all expect Chinese stocks to keep rising in 2026. JPMorgan Chase & Co. recently upgraded the market to overweight, while Gary Tan at Allspring Global Investments says the asset class is becoming “indispensable” for foreign investors.

Investor perception toward China has shifted from one of skepticism to a recognition that the market can deliver unique value through its technological advances. The MSCI China Index has jumped about 30% this year, beating the S&P 500 Index by the most since 2017 and adding $2.4 trillion in value. With most of the inflows driven by passive funds, there’s hope that a return of active money managers can steer the next leg of the rebound.

“China has turned a corner, proved more resilient and investors are now increasingly embracing an ‘investible’ China that offers diversification and innovation,” said George Efstathopoulos, a portfolio manager at Fidelity International in Singapore. “I’d be more inclined to be buying China dips right now.”

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Foreign long-only funds bought around $10 billion of shares in mainland China and Hong Kong through November this year, according to data from Morgan Stanley, in a reversal from 2024’s $17 billion outflow. The inflow was driven entirely by passive investors, who track indexes, while active fund managers pulled out around $15 billion.

The reason is partly because many active investors — who rely on stock picking — are still unable to shake off years of anxiety over the economy’s slowdown and Beijing’s sudden crackdown across private sectors. While authorities have adopted a more business-friendly stance this year, stimulus has fallen short of investor expectations.

Some global fund managers said that the bar for investing in China remains high with the US market also doing well, said Winnie Wu, head of Asia Pacific equity strategy at Bank of America, who regularly meets investors to canvass how they’re thinking about the market. But she said improving earnings and a turnaround in China’s chronic deflation problems may turn the tide.

“The next leg of China rally will be driven by global funds,” she said.

Slow Bull

The bull case for Chinese stocks rests on optimism over a burgeoning class of tech giants in chips, biopharma and robotics, alongside hopes the world’s second‑largest economy can finally rid itself of deflationary pressure.