China Stock Market Rally Shows Signs of Cooling by Year-End

China's stock market rally, primarily driven by AI and tech stocks, is showing signs of slowing down, with the CSI 300 Index expected to close 2025 with only a modest gain of around 1.2% and a further slight increase predicted by mid-2026. Despite a 17% rise this year fueled by major gains in tech-related companies and a large IPO by Zijin Gold, analysts express concern over the sustainability of the rally amid stretched valuations, inconsistent policy support, and geopolitical tensions, including lingering effects of Trump-era policies. Many experts emphasize the critical role of foreign capital to sustain the market momentum, but ongoing US-China uncertainties and weak macroeconomic indicators continue to deter long-term investment. The Chinese government has recently signaled a strategic shift toward encouraging corporate profitability by addressing excessive competition and price wars, aiming to improve earnings and support stock market growth. This policy shift, coupled with measures to stimulate the market such as rate cuts and eased regulatory requirements initiated last September, underpin attempts to stabilize and boost confidence. However, despite these efforts, skepticism remains among global investors who are cautious about re-engaging until geopolitical and economic uncertainties abate.