China Assets See 'Stock-FX Resonance' Again, Foreign Net Inflows Hit $13.1B YTD

China's economy and corporate earnings both exceeded expectations in Q1, and although some indicators temporarily pulled back in April, multiple foreign institutions at the recent UBS Asia Investment Forum and JPMorgan Global China Summit believe China is in a transition phase from old to new growth drivers. Short-term fluctuations are normal, and Chinese assets remain an important window for global capital reallocation.

China Assets See 'Stock-FX Resonance' Again

Despite a temporary softening in some April economic indicators, foreign investor interest in Chinese assets has not declined significantly.

On one hand, China's economy remains broadly resilient — full-year GDP growth was around 5% in 2025, and Q1 2026 maintained a similar pace, placing China among the top performers among major economies. On the other hand, global asset pricing logic is shifting.

Over recent months, the escalation of Middle East tensions, elevated U.S. Treasury yield volatility, and the weakening safe-haven function of dollar assets have prompted global funds to reassess their asset allocation frameworks. Many foreign institutions view "stable East, volatile West" as an increasingly important macro theme.

Against this backdrop, the appeal of RMB-denominated assets has risen notably.

UBS Securities chief China economist Wang Yu noted that the current yuan appreciation is not policy-driven, but reflects shifting market expectations. In prior years, markets widely anticipated yuan depreciation, with a tendency to convert to foreign currencies whenever possible. With improved China growth expectations, expanding trade surpluses, and a recovering capital market, FX market sentiment has reversed significantly.

JPMorgan's chief China economist Zhu Feng expects the yuan to remain broadly "stable with a slight appreciation bias." JPMorgan currently projects the yuan exchange rate may strengthen to around 6.7 by year-end. He also noted that if the U.S. faces stagflation risks and the Fed re-enters a rate hike cycle, changes in the China-U.S. interest rate differential could periodically weigh on the yuan — but China's monetary policy core remains domestically focused, prioritizing domestic growth and inflation.

This "stock-FX resonance" has already been visible in markets recently, with the yuan exchange rate, A-share performance, and improved corporate earnings forming a positive feedback loop in the months leading up to April.

UBS Securities research head Xu Bin noted that although some exporters face FX translation losses from yuan appreciation, growth in overseas revenues and improvement in domestic demand more than offset this effect. He maintained an overweight recommendation on Chinese equities.

Year-to-date, foreign investors have net bought approximately 13.1 billion USD worth of Chinese A-shares through northbound connect channels, with institutions particularly increasing allocations to high-quality companies in consumer, technology, and financials sectors.