China’s $11 Trillion Market Gains Momentum as Investors Shift From Bonds to Equities

The Shanghai Composite Index closed at its highest level in a decade on Monday as local investors reallocated capital from bonds into equities amid easing trade tensions with the United States and optimism over government policies.

The benchmark index advanced 0.9 percent to 3,728 points, its strongest finish since August 2015 and closed with a 20 percent rebound from April lows triggered by U.S. tariff escalations.

The rally showed renewed confidence in China’s $11 trillion equity market, which has long underperformed global peers over the past decade.

Retail Participation and Liquidity Surge

Turnover on mainland exchanges exceeded 2.7 trillion yuan ($376 billion), the second-highest on record, according to Bloomberg data.

The surge reflects heightened risk appetite among retail investors, buoyed by near record-high savings and policy adjustments that favor equities.

Mainland Chinese investors also bought HK$35.9 billion ($4.6 billion) worth of Hong Kong-listed shares on Friday, marking the largest single-day inflow through cross-border trading.

At the same time, the volume of margin debt has climbed to the highest since 2015, just 10 percent below all-time highs, highlighting growing use of leverage in the rally.

Bond Market Pressure

China’s bond market showed signs of strain as investors rotated away from fixed income. Yields on the 10-year government bond rose four basis points to 1.78 percent, while 30-year yields gained six basis points to 2.11 percent.

Bond futures suffered their steepest decline since March after Beijing moved to reinstate taxes on interest payments from government and institutional bonds.

The shift in asset allocation comes as the People’s Bank of China signaled caution in its latest policy report, with little indication of aggressive monetary easing in the near term.

Trade Truce and Policy Support

Market sentiment has also improved following U.S. President Donald Trump’s decision to extend a tariff truce with China, easing fears of a prolonged trade war that rattled global markets earlier this year.

Fund managers say the rally is supported not only by geopolitical developments but also by domestic reforms, ranging from measures to bolster consumption to tighter oversight of overseas stock trading and subsidies on consumer loan interest payments.

Sector Performance and Outlook

The Shanghai Composite has advanced 11 percent year-to-date, outperforming the CSI 300 Index, which is up around 8 percent. A heavier weighting of bank stocks, supported by buying from insurance funds, has contributed to the index’s relative strength.

Analysts argue that optimism around artificial intelligence, corporate earnings, and Beijing’s gradual policy support are likely to sustain momentum.

“We’re confident that this rally has legs,” said Wang Huan, fund manager at Shanghai Zige Investment Management Co. “Liquidity remains abundant, policy is supportive, and there is optimism that the economy is bottoming out.”

While the index remains well below its all-time peak of 5,166 in 2015 and the record high of 2007, the current rally signals a stronger outlook for China’s equity market with both institutional and retail investors increasingly positioning for long-term growth.