Chinese stock markets performed strongly during the first half of the year, with technology and advanced manufacturing companies reporting notable profit growth, market analyst Timothy Pope said on Wednesday.
Pope said China's major stock indexes rose in the first half of the year, but the performance of individual stocks in the country's A-share market diverged. Technology and advanced manufacturing companies posted significant gains.
"At the headline level, the first half of the year looked pretty strong for the Chinese mainland markets -- the Shanghai Composite Index was up more than 3 percent while the Shenzhen Component's first half return was almost 20 percent, the ChiNext's -- 35 percent and the STAR 50's are whopping 64 percent. But what is important to note is that while the A-share markets rose, most individual A-shares actually fell. There are more than 5,500 mainland-listed stocks, and only 1,715 rose during the first half. According to data from East Money, we had 362 companies which saw their stock prices at least double --70 of those were chip companies, pretty tellingly," said Pope.
"What that leaves us with is a sort of three-speed market. On the top, we've got these companies -- mostly hard tech firms in AI, semiconductors and advanced manufacturing that are making these really extraordinary gains; then there is a layer of some more resilient blue-chip companies and in the bottom layer we've got food and beverage stocks, commercial retail and agriculture. Those sectors all saw some hefty double-digit declines in the first half of the year. One of the most striking figures I've seen comes from Wind data and it shows the gap between the best and worst performing sectors -- electronics and commercial retail and that gap is more than 115 percentage points," he said.
Pope said corporate profits show a similar divergence.
"When it comes to profits, we're looking at a similar picture, but we need to be a bit careful here because we don't have a full picture for first-half profits yet. Earnings are definitely improving, especially among tech and advanced manufacturing companies, reflecting, I think, both the scale and the scope of the government support that we have seen for those sectors. The most up-to-date profit numbers that we have are for large industrial companies up to the end of May, and this showed profits up 18.8 percent but a lot of different sectors are sort of bundled into that number and there was, in some cases, some quite wide divergence among the sectors that are included there," he said.
The analyst said strong index performance and improving corporate profits have prompted global investors to rebuild their exposure to Chinese stocks.
"This -- both the strong indexes and the improving profits-- has prompted foreign investors and global funds to start rebuilding their China exposure a bit during the first half of the year. According to the CSRC (China Securities Regulatory Commission) --the stock market regulator -- foreign investors held 4 trillion RMB (about 590 billion U.S. dollars) in freely tradable A-shares by late May, and that was up from 3.67 trillion at the end of 2025, so, an increase of roughly 9 percent. But this comes with a small caveat -- an increase in the value of holdings doesn't automatically mean foreign investors bought 330 billion yuan worth of stocks, because the valuations have been going up. The interest has been intense but, again, it's been fairly selective," he said.
Looking ahead, Pope said the sustainability of the rally will depend on whether corporate earnings can keep pace with rising valuations and expand beyond the technology sector.
"Looking ahead, I think a decisive factor over the rest of the year could be the valuation gap that we have seen forming over the course of 2026 so far. This is going to be something to watch because some Chinese tech names in particular are starting to look incredibly expensive, even more so in some cases than their U.S. counterparts when considered on price-to-earnings. That's because we have these massive stock price rallies for some of these companies in the first half (of the year), and it's been so quick that underlying earnings have not yet had a chance to catch up. If corporate earnings growth can broaden out beyond the tech sector, I think, we could start to see a much broader-based stock gain for the markets, but otherwise the rally could remain powerful but pretty highly concentrated," he said.
Chinese stock markets post strong H1 performance, improving corporate profits: analyst
