The Chinese stock market has experienced a major upswing that will continue, says the strategist

• The Chinese stock market has recovered and analysts believe the rally is likely to continue.

• Two major economic indexes have signaled positive signs that Chinese stocks have bottomed out.

• After six months of outflows, foreign investors are gradually putting money back into China.

The Chinese stock market may have shaken off its “uninvestable” label, with an economic recovery and rally that could have a lot more room to run.

LPL financial strategist Adam Turnquist wrote this week that long-standing negative views on China's real estate and stock markets had shaken investor confidence. However, recent strong economic indicators suggest that the country's economy has “bottomed out.”

“As is often the case, sentiment extremes often work better than contrarian signals, which are often found at key market turning points,” Turnquist wrote in a note on Thursday.

The MSCI China Index, a go-to source for global investors eyeing mid- to large-cap stocks, has rebounded from its bear market lows with a solid 20% gain.

“About a third of voters hit new four-week highs last week, while nearly 50% are also above their 200-day moving average, marking the highest percentage since August,” he said.

Another momentum indicator that compares an asset's current price to its historical performance – the Percentage Price Oscillator – recently issued a buy signal, adding more weight to the claim that the rally can push higher.

China's recent reputation as “uninvestable” has been fueled by worsening real estate woes, a slumping stock market and dismal consumer demand, triggering a wave of deflation for the country.

But after six consecutive months of capital outflows, foreign investors are returning to invest in the country's markets.

“Northward flows linking Hong Kong and mainland Chinese bourses have been positive for three consecutive months, with nearly 100 billion yuan flowing into mainland equities since February,” the note added.

Since early 2024, Beijing has taken measures to revitalize its markets and economy, including limiting short sales and promoting a new real estate development approach while boosting construction efforts. The country's economy grew by 5.3% in the first quarter of 2024.

Billionaire investor Ray Dalio said in March that it was the best time to invest in China because it was cheap, while warning that the country could be heading into a “100-year storm” with several major economic challenges.

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