Chinese equities surged to multi-year highs on Tuesday, led by technology and materials shares, as investors bet on the country’s advances in artificial intelligence and early signs of an economic recovery.
The benchmark CSI 300 Index climbed 1.6% to its highest level in four years, while the Shanghai Composite Index rose 1.5% to its strongest close since July 2015.
The market rally was fueled by upbeat manufacturing data, Chinese President Xi Jinping’s positive economic assessment, and continued momentum in AI-related stocks. Analysts said investors expect the gains that made Chinese equities a global standout last year to continue, supported by Beijing’s backing for key sectors and measures to revive the struggling property market.
Trading activity and leverage remain elevated. Turnover on the onshore market hit roughly 2.8 trillion yuan ($400.6 billion), the highest since mid-September. Margin loans used by investors to buy stocks hovered near record levels, reflecting strong risk appetite.
Global markets also posted gains on Tuesday, with technology shares—particularly those tied to the AI supply chain—drawing attention despite rising geopolitical tensions in Latin America.
However, some indicators suggest the rally may be overheating. The 14-day relative strength index on the Shanghai Composite climbed above 75, entering technical overbought territory for the first time since early September. The CSI 300 is approaching similar levels last seen in October.
Despite these warnings, investors remain optimistic. A strong pipeline of AI-focused listings is expected to sustain momentum after last month’s high-profile debuts, including ChangXin Memory Technologies Inc. and Yangtze Memory Technologies Co., each projected to target valuations between 200 billion yuan and 300 billion yuan.
Confidence in China’s AI sector has strengthened this year, boosted by DeepSeek’s research on more efficient AI development methods and the growing international popularity of Kuaishou Technology’s AI-powered video app.
“I think DeepSeek is making a breakthrough, and many other Chinese AI companies are making breakthroughs as well,” said Hao Hong, chief investment officer at Lotus Asset Management, on Bloomberg TV. “Liquidity continues to rise, creating a positive environment conducive for risk-taking.”
The equity rally coincided with a pullback in Chinese government bonds. Yields on the 10-year note rose 2 basis points to 1.88%, while the offshore yuan strengthened 0.1% to around 6.98 per dollar, near its strongest level since May 2023.
