Last year saw positive market results despite many naysayers. Can this rally extend into 2026? In this article, we examine China’s policy stance, economic fundamentals and equity market implications to find answers.
January 15, 2026
By Jasmine Duan
Chinese equities closed out 2025 with strong annual gains for the second consecutive year. The MSCI China Index surged 31 percent, while Hong Kong’s benchmark Hang Seng Index rallied 28 percent. The gains caught many market participants by surprise, as numerous analysts had urged caution at the start of 2025 due to ongoing U.S.-China trade tensions.
We think the following factors will shape equity market returns in 2026.
Chinese policymakers outlined their roadmap for 2026–2030 in the 15th Five-Year Plan announced in Oct. 2025. Regarding economic growth, the plan aims for China to reach the level of moderately developed countries by 2035. This implies nearly a 50 percent increase in GDP per capita to US$20,000 from the current US$13,300 level.
Policymakers specified that China will achieve an annual average economic growth rate of 4.17 percent over the next decade in official Party study material. While the 2026 GDP growth target is expected to be officially announced in March, we anticipate the growth rate will remain elevated (i.e. around five percent) in the coming years before gradually moderating.
Securing higher growth at the outset of the 15th Five-Year Plan period would allow the target to ease in subsequent years, in our view. Pursuing stronger growth in the early phase may also be a positive indication, bolstering household and business confidence.
Setting ambitious growth targets is inspiring, yet investors may question their achievability. Many market participants argue that China continues to face multiple long-term growth challenges, for example, an incomplete property market correction, weak domestic consumption, deflationary pressures and persistent geopolitical tensions. While these issues are unlikely to resolve quickly, their broader economic and equity market impacts require careful analysis, in our view.
Take the property sector as an example. Residential property prices and investment remain in a downturn, and developers continue to face distress. Notably, two-thirds of China’s top 50 developers have defaulted on bond payments in recent years.
However, the impact on the economy and equity market should be less severe than years ago. At the peak in 2018, property and related sectors contributed 25 percent of China’s GDP, but Bloomberg Economics estimates suggest this share has fallen significantly, and the economic contribution from technology industries has filled the property sector’s shoes. The property sector now accounts for just 1.4 percent of the MSCI China Index, limiting its direct equity market impact even if negative news from developers continues to emerge.
The housing market correction no longer poses systematic financial risk, in our assessment. Policymakers have reduced emphasis on the property sector, ranking it last among eight economic priorities for 2026.
Source – RBC Wealth Management, Bloomberg Economics, National Bureau of Statistics of China; figures for 2025 and 2026 represent Bloomberg Economics projections.
The chart shows contributions to Chinese GDP by technology-related and property-related sectors annually since 2017, with Bloomberg Economics projections for 2025 and 2026. At the peak in 2018, property and related sectors contributed around 25 percent of China’s GDP, but this share has fallen significantly. It’s contribution is estimated to be 16.6 percent in 2026. For technology-related sectors, the contribution to GDP is projected to increase to 18.3 percent in 2026, from roughly 11 percent in 2018.
The 15th Five-Year Plan prioritises domestic demand and consumption more than ever. However, recent stimulus measures – such as the revised trade-in subsidy programme for consumer goods – suggest to us that subsidy amounts and scope in 2026 will be more restrained than last year. This raises the question: Is boosting domestic demand merely a slogan, or will the government implement meaningful action?
We believe the approach to supporting domestic demand has shifted. Policymakers are now focusing on reducing income inequality and preventing a resurgence in rural poverty. Recent labour market weakness has suppressed wage growth for migrant workers, and the growth in migrant worker numbers has slowed significantly since 2023. The rural poverty rate could increase if migrant workers lose their jobs in the city and move back to rural areas.
Therefore, we anticipate more targeted measures aimed at redistributing and strengthening the social safety net for lower-income groups, rather than broad-based consumer subsidies. Potential new initiatives, such as reducing maternity-related costs, may also be introduced.
It is unsurprising that policymakers have prioritised advancing science and technology and industrial modernisation as the top goals for the next five years. However, the technology agenda extends beyond national security and self-sufficiency.
Following recent breakthroughs in electric vehicles, innovative drugs and AI, technology has emerged as a new driver of China’s economic growth. Policymakers aim to deploy technology economy-wide to enhance productivity, enable scalable commercial applications and generate new demand.
China is making rapid progress in technological adoption, leveraging its manufacturing supply chain advantages. For instance, its deployment of robotics in manufacturing is 12 times greater than the U.S. when adjusted for income.
To achieve these goals, we think the central government may assume a greater role in directing technology and industrial policy. This could reduce local protectionism, market segmentation and overcapacity issues.
The renminbi has begun 2026 with a notable rally, appreciating nearly one percent against the U.S. dollar over the past month and strengthening past CNY 7.0 for the first time since 2023.
We believe the People’s Bank of China may tolerate further renminbi appreciation against the dollar as the U.S.-China trade truce looks more durable this time. If growth concerns ease and depreciation risks subside, we think the central bank is likely to reduce currency market intervention, consistent with historical patterns.
After a year dominated by U.S.-China trade tensions, China’s economic trajectory appears to be back under its own control. The latest trade deal between the two countries, reached in October, appears more durable and is likely to set the stage for a more sustainable Chinese equity market rally, in our view.
Following a pullback in Q4 2025, the MSCI China Index trades at a more reasonable valuation, with a 12-month forward price-to-earnings multiple of 12.7x, slightly above an 11.6x historical average. Notably, valuations of China’s AI and internet leaders still look discounted relative to their U.S. peers. As investors increasingly question whether U.S. AI companies are overvalued, we anticipate greater interest in Chinese AI stocks. This could provide support for the broader equity market.
With the contribution of Leo Shao.
We want to talk about your financial future.
This publication has been issued by RBC’s Wealth Management international division in the United Kingdom and the Channel Islands which is comprised of an international network of RBC® companies located in these jurisdictions and includes RBC Europe Limited and Royal Bank of Canada (Channel Islands) Limited. You should carefully read any risk warnings or regulatory disclosures in this publication or in any other literature accompanying this publication or transmitted to you by RBC’s Wealth Management international division.
This publication has been compiled from sources believed to be reliable, but no representation or warranty, express or implied is made to its accuracy, completeness or correctness. All opinions and estimates contained in this report are judgements as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, the value of investments and income arising can go down, future returns are not guaranteed, and an investor may not get back the amount originally invested. Countries throughout the world have their own laws regulating the types of securities and other investment products and services which may be offered to their residents, as well as the process for doing so. As a result, any securities or services discussed in this report may not be eligible for sale in some jurisdictions. This report is not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice.
This material is prepared for general circulation and does not have regard to the particular circumstances or needs of any specific person who may read it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. To the full extent permitted by law none of the entities which comprise the international division of RBC Wealth Management nor any of their affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of RBC Wealth Management.
Clients of RBC Europe Limited may be entitled to compensation from the UK Financial Services Compensation Scheme (FSCS) if it cannot meet its obligations. This depends on the type of business and the circumstances of the claim. For further information about the compensation provided by the FSCS scheme (including the amounts covered and eligibility to claim) please refer to the FSCS website FSCS.org.uk. Please note only compensation related queries should be directed to the FSCS. Royal Bank of Canada (Channel Islands) Limited is not covered by the UK Financial Services Compensation Scheme.
RBC Europe Limited is registered in England and Wales with company number 995939. Its registered office is 100 Bishopsgate, London EC2N 4AA. RBC Europe Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Royal Bank of Canada (Channel Islands) Limited (“the Bank”) is regulated by the Jersey Financial Services Commission in the conduct of deposit taking, fund services and investment business in Jersey. The Bank’s general terms and conditions are updated from time to time and can be found at https://www.rbcwealthmanagement.com/en-eu/terms-and-conditions. Registered office: Gaspé House, 66-72 Esplanade, St. Helier, Jersey JE2 3QT, Channel Islands. Deposits made with Royal Bank of Canada (Channel Islands) Limited in Jersey are not covered by the UK Financial Services Compensation Scheme. Royal Bank of Canada (Channel Islands) Limited is a participant in the Jersey Bank Depositors Compensation Scheme. The Scheme offers protection for ‘eligible deposits’ up to £50,000 per individual claimant, subject to certain limitations. The maximum total amount of compensation is capped at £100,000,000 in any 5 year period. Full details of the Scheme and banking groups covered are available on the Government of Jersey’s website http://www.gov.je/dcs or on request.
Investment services offered by the Bank are not covered by an investor compensation scheme as there is currently no such scheme operating in Jersey, however ‘eligible deposits’ held pursuant to investment services may be protected under the Bank Depositors Compensation Scheme described above – for more information see the Bank’s general terms and conditions. Some of the products that the Bank might recommend to you could be registered overseas and may be covered by a local compensation scheme. Your investment counsellor will provide you with the details of any overseas compensation schemes (where applicable) at the time of making an investment recommendation.
Copies of the latest audited accounts are available upon request from the registered office. ® / ™ Trademark(s) of Royal Bank of Canada. Used under licence.