CSC Financial's Zhou Junzhi: Three Medium-to-Long-Term Positives for China's Capital Market Are Gathering Strength

Chinese A-shares have undergone a marked correction recently, with the previously buoyant technology sector under visible pressure. What triggered this round of selling? Beyond the short-term swings, how should investors view the market's medium- to long-term trajectory?

"This correction has been driven mainly by overseas market volatility and shifts in external risk appetite. Tech and growth names that rallied hard earlier are seeing deeper drawdowns because their valuations carried high expectations. But a short-term price adjustment does not mean a reversal of the long-term trend," said Zhou Junzhi, chief macro analyst at CSC Financial, in an interview with the 21st Century Business Herald.

Taking a longer view, Zhou believes the market's medium- to long-term growth logic remains clear. Upgrading of the technology sector is expected to drive earnings growth for listed companies; the migration of household asset allocation is expected to bring domestic incremental funds into A-shares; and RMB internationalization is expected to broaden the scope for overseas funds to allocate to Chinese assets. The three logics act respectively on the earnings side, the domestic funding side and the overseas funding side of the A-share market.

Earnings side: technology upgrading drives listed companies' earnings growth

From the earnings perspective, Zhou sees the continued upgrading of the technology industry as the engine of long-term earnings growth for A-shares.

"Technology diffusion typically unfolds over decades, and the valuation resets and industry swings along the way do not signal a reversal of the long-term trend." Zhou frames the question in historical terms: from the commercialization of the information industry in the 1990s to the maturing of the mobile internet, the transition took roughly 20 years and was accompanied by the bursting of the dot-com bubble, the financial crisis and repeated rounds of earnings and valuation repricing.

Even the semiconductor industry itself has inventory and capital-expenditure cycles of about three to four years. "The current AI capital spending by overseas technology companies is shifting from growth expectations to scrutiny of free cash flow and investment returns, and the valuations of related assets are adjusting accordingly. This is more a reflection of cyclical repricing in the process of technology diffusion," Zhou said.

So where does China's technology industry stand in this cycle? Zhou's analysis: it is moving from technology catch-up to global leadership in selected fields, creating new earnings growth space for listed companies.

According to industry data, in the first three quarters of 2026, seven of the world's top ten power battery makers by installed capacity were Chinese companies, with a combined share of more than 73%. In semiconductors, domestic players such as ChangXin Memory continue to make breakthroughs at key DRAM technology nodes.

"As technological progress diffuses through the supply chain, the global market share and profitability of Chinese companies are expected to keep rising, providing fundamental support and re-rating potential for A-shares," Zhou concluded.

Domestic funding side: household asset allocation migration brings potential inflows

On the funding side, the migration of household asset allocation is a key variable. "The gradual diversification of household wealth from real estate into financial assets is an important potential source of long-term funding supply for A-shares," Zhou said.

Citing market institutions' estimates, Zhou noted that in the first quarter of 2026 total household assets were about 730 trillion yuan, with real estate's share falling from about 67% at the 2021 peak to about 52%, cash and deposits rising from about 16% to about 25%, other financial assets from about 15% to about 20%, and direct equity holdings from about 5% to about 6%.

"As housing gradually returns to its residential function, household wealth needs new destinations. Meanwhile, the rising global competitiveness of China's manufacturing and technology companies provides a fresh industrial base for equity investment," Zhou said. Given the sheer size of household assets, even a small increase in the equity allocation ratio could bring considerable long-term incremental funds into the A-share market.

But she cautioned that the process will not happen overnight. "Deposit ratios are still at a high level and household risk appetite will take time to repair. The rise in equity allocation is more likely a gradual process measured in years."

Overseas funding side: RMB internationalization broadens the space for global funds to allocate to A-shares

Looking at the overseas funding side, Zhou said the expanding international use of the RMB will raise the allocability of Chinese assets in global investment portfolios, opening up overseas incremental funding space for A-shares.

"China has ultra-large domestic demand and a fairly complete industrial system. As cross-border RMB use keeps expanding, Chinese assets are becoming more deeply connected with the global financial system," Zhou said, citing People's Bank of China data: by SWIFT statistics the RMB accounts for roughly 3%-4% of international payments, ranking fifth globally; counting the cross-border payment system and interbank settlements, the share is about 6%-7%, ranking third. Cross-border RMB payments and receipts handled by banks on behalf of customers reached 70.6 trillion yuan in 2025 and 42.4 trillion yuan in the first half of 2026, up 21.4% year on year.

Meanwhile, the logic of foreign allocation is also changing. Zhou noted that foreign investors' allocation to Chinese assets is expected to gradually rotate from traditional industries toward emerging industries. In the first three quarters, actual foreign investment into high-tech industries reached 228.5 billion yuan, up 33.8% year on year.

"RMB internationalization broadens the channels for capital inflows, and the rising competitiveness of China's technology and manufacturing sectors provides new investable targets. The combination is expected to encourage long-term overseas funds to increase their allocations to Chinese assets," Zhou concluded.