Investment Focus: Should you invest in China's stock market?

China's stock market has had a bumpy 2026 - squeezed by AI-trade competition and a shaky property sector. However, China’s economy is still the world's second-largest, its clean energy and AI investment is unmatched, and its stocks look cheap next to global peers. Here's how the market works, from ‘A’ shares to ‘H’ shares, and the funds and ETFs that can get you exposure.

Is China’s planned economy winning the AI and energy race?

The Iranian crisis looked like it might prompt a crisis for China. After all, China was the world's biggest crude oil importer and bought more than 80% of Iran's shipped oil. [1] There were even rumours that this was why Donald Trump had launched the attack. But China showed a foresightedness that wrong-footed its enemies.

It turned out to have far greater stockpiles of oil than anyone had anticipated. Its long-running renewable energy drive also cushioned the impact. Research from Atlas Public Policy shows China accounted for more than half of the $1.1 trillion in global clean energy investment between 2019 and 2025, spending double that of the US. The country is well on its way to achieving its ambition of becoming the world’s first electro-state.

Clean energy is not the only area where the country’s long-term approach is clear. It has also stolen a march on AI. It surprised the world in January 2025 with the launch of Deep Seek, which sought to rival industry-leading models in the US such as ChatGPT, but at a fraction of the cost. Since then, it has become increasingly clear that China’s AI development may be every bit as sophisticated as that of the US.

China has taken a different approach to AI. At a recent technology conference, President ​Xi Jinping championed the country’s open-source approach, pledging to help developing nations build AI capabilities.[2] This approach is in contrast to the US AI platforms, which are ‘closed’. Open AI can be used freely and adapted by countries or companies to suit their needs. ‘Closed’ models are controlled by a single company and may be subject to political interference, as has been seen with groups such as Anthropic.

In these two areas, China has shown the advantages of a planned economy

. It has been able to target key areas of innovation with minute focus and build world-leading technology. Its forward planning is also evident in its marshalling of critical resources. For example, it has ensured its access to rare earth metals, crucial for electronic goods such as smart phones. It was this access that gave it a far stronger negotiating hand with Donald Trump over tariffs.

This long-termism has been crucial in the rapid development of the Chinese economy since joining the World Trade Organisation in 2000. It was this that ignited its growth, prompting an astonishing expansion in its economy, from US$1.34 trillion to US$19.5 trillion today.[3] This has been transformational for living standards. GDP per capita has grown from $7,690 in 2014 to $13,800 today. [4]

It has not all been plain sailing, however. In particular, the country’s property market has been through a boom-and-bust cycle that has dented consumer confidence and blighted the future for many households. The country is emerging from the worst of its weakness now, but it has been a long and painful process. The founder of China Evergrande Group, the over-indebted property group at the centre of the country’s property crash was recently sentenced to life in prison.

Equally, there are still problems with its economic model. It is a command economy and government subsidies can create over-supply in certain industries. Solar panels have been an obvious example. That can make it difficult for companies to make money. It has also struggled with deflation, and weak domestic demand. The hoped-for consumer boom has failed to ignite.

Nevertheless, the country’s transition has been remarkable. It has moved from being a manufacturing hub up the food chain, emerging as a powerhouse in key industries. It has already surpassed the US as the world’s largest economy on purchasing power parity terms. It has shown itself to be capable of greater foresight than many of its global peers. It cannot be ignored as a force in the global economy.

What are the main Chinese stock markets?

There are two main indices in China – onshore ‘A’ share markets and offshore ‘H’ shares.

What are China’s ‘A’ shares and how do you buy them?

The China A shares market comprises those companies listed in mainland Chinese markets. The largest are the Shanghai and Shenzhen exchanges. These were hard to access for foreign investors until the introduction of the ‘Stock Connect’ scheme in 2014, which allowed foreign investors to buy ‘A’ shares through accounts in Hong Kong. Nevertheless, domestic retail investors still dominate, accounting for around 70% of daily market turnover. Shares on these exchanges are valued in Chinese renminbi (RMB).

Tessa Wong, senior product specialist, at Allianz Global Investors, says the onshore China ‘A’ market has historically been relatively more diversified than the ‘H’ share market in Hong Kong, offering a broader representation of sectors and supply chains across the China economy. Unsurprisingly, it contains more domestic Chinese companies. The main index for the ‘A’ Shares market is the SSE 180 Index

. ‘A’ Shares have gradually been integrated into many mainstream indices such as MSCI China or MSCI Emerging Markets.

The largest companies in the SSE 180 index include drinks group Kweichow Moutai, energy groups China Shenhua Energy, China National Petroleum Corporation and PetroChina, plus financials groups China Merchants Bank and CITIC Securities.

What are China’s ‘H’ shares and how are they different from ‘A’ shares?

Prior to the introduction of ‘Stock Connect’ most investors took exposure to Chinese companies through the Hong Kong market. The Hong Kong market tends to hold larger, more internationally focused companies. There are two main indices: the Hang Seng Index

and the Hang Seng Composite Index.

Wong says the characteristics of the market have been changing in recent years.

The largest holdings in the Hang Seng index are social media groups Tencent and Alibaba, plus banking giants HSBC and China Construction Bank Corporation [5]. China Mobile is another major holding alongside energy group PetroChina.

How have Chinese stocks performed recently?

It has been a difficult year for the Chinese stock markets. The strength of the AI trade, and particularly the strong performance of Asian semiconductor and memory names, has crowded out Chinese companies. There have also been concerns about the strength of Chinese growth. Consumer confidence remains weak in spite of some improvement in the property market.

Over the past 12 months, there has been little difference between onshore and offshore Chinese equities. The SSE 180 Index is down 1.9% over the past year, compared to a fall of 1.2% in the Hang Seng. There is a greater difference over three years, with the Shanghai index up 22.6%, and the Hang Seng up 43%. [6]

The Chinese market has shown some reverse correlation with the AI trade. Schroders points out that China was the strongest performing major emerging market during the AI sell-off in July, “benefiting from the shift in investor positioning out of Korea and Taiwan, with banks and internet names among the primary beneficiaries.”

Funds in the IA China/Greater China sector have performed better than indices, but still lag other equity sectors. The average fund is up 1.2% for the year to date in 2026. [7] China funds had a better year in 2025, rising an average of 21.9%, making it one of the top performing equity sectors.

Which funds and ETFs give you access to China?

It is almost impossible to invest directly in Chinese companies, though some Chinese stocks – such as Alibaba – also have international listings. Most investors will access Chinese markets through collective funds.

There are a range of ETFs

to choose from, including those tracking the ‘A’ Share and Hong Kong markets. iShares has an ETF tracking the MSCI China, for example, while HSBC, iShares and Amundi have ETFs focused on the Hong Kong markets. It is worth noting that ‘A’ share exposure tends to be technology-heavy (around 30%), while the Hong Kong market has more in financials (33%) and consumer discretionary stocks (19%). There are also specialist sector ETFs, including those based on Chinese internet stocks, Chinese innovation or the Chinese consumer.

There are also a range of well-established active funds

, across both OEICs and Investment Trusts. Within Investment Trusts, there are the Fidelity China Special Situations, JP Morgan China Growth & Income, and Baillie Gifford China Growth funds. Among open-ended funds, the strongest performers over three years have been T. Rowe Price China Evolution, Ninety One China ‘A’ Shares,
Allianz China A-Shares Equity and Matthews China Innovators. These have tended to lean towards the technology sector, where share price performance has been strongest.

Is China a good investment right now?

China had a strong year in 2025 but has struggled in 2026 against a tide of geopolitical unrest and higher energy prices. Its economic outlook is still relatively uncertain. GDP

expanded by 4.3% in the second quarter, which represented a slowdown from the 5% growth since in the first quarter and is marginally below the Chinese government’s 4.5%-5% target range. Industrial production and exports remain strong: China has managed to diversify its export base significantly in recent years, which has helped it manage through trade tensions with the US. However, the domestic economy remains relatively sluggish.

China has managed to look like a stable trading partner against the volatility

and caprices of the US.

Valuations for Chinese companies also look far lower than for many of their international peers. Its AI sector, for example, trades at a fraction of the valuations seen in the US. Nicholls points out that corporate governance reforms are encouraging companies to reward their minority shareholders through dividends

and share buybacks, “policies that have proved successful in other markets such as Japan and South Korea”.

Ultimately, China is becoming a potent force in the global economy. Its share of global capital markets is in contrast to its economic might. The road is likely to be bumpy, but remains an important source of innovation and growth.

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[1] Reuters

[2] Reuters

[3] Trading Economics

[4] Trading Economics

[5] Yahoo Finance, Hang Seng Index

[6] Financial Times, 21 August 2026

[7] Trustnet, 21 August 2026