China's Capital Market Transitioning to a Steady 'Slow Bull' Phase

Understanding the 'Slow Bull' Phase in China's Capital Market

China's capital market is demonstrating significant evolution as it embarks on a new trajectory defined by stability and resilience, often referred to as a "slow bull" market. Guosen Securities Co., Ltd., one of the foremost investment banks in China, notes that this phase is characterized by consistent upward trends rather than volatile surges. This article delves deeper into the factors contributing to this observed market behavior, emphasizing the role of liquidity, policy support, and underlying economic fundamentals.

The Rise of Institutional Investment

At the forefront of this transition is the substantial influx of liquidity driven primarily by institutional investors. Guosen Securities reports that the balance of capital under institutional management—including wealth management firms, trusts, and insurance products—has surpassed RMB 100 trillion. Despite this vast capital reservoir, the current equity allocations of these institutions remain significantly below historic levels, indicating ample room for future growth.

The trend towards institutional investment is pivotal, with institutional inflows being the primary drivers of the recent rally in A-shares since July 2025. By August, nearly 10,000 new institutional stock accounts were recorded, marking the highest number since 2022. This surge signifies a departure from retail-driven market dynamics and underscores a more stable and systematic approach to investments.

Supportive Policies Enhance Investor Confidence

Policy initiatives have emerged as critical enablers of the slow bull market. In January 2025, regulators introduced measures aimed at channeling medium- and long-term funds into the market, with clear targets set for public funds to increase their holdings of A-shares by 10% annually over the next three years. This proactive policy framework strengthens investor confidence, as it not only promotes stability but also fosters a conducive environment for sustained market growth.

The role of the government in stabilizing the market cannot be understated, particularly as it chose to maintain its policies independently, resisting pressures to follow the U.S. Federal Reserve's rate cuts. This independence reinforces a cautious and steady approach to monetary policy, seen in the consistent rates of the 7-day reverse repo and Loan Prime. Such a strategy highlights a commitment to structural optimization rather than sharp, aggressive monetary easing, providing targeted support to areas like technology and small enterprises.

Strengthening Economic Fundamentals

The overall economic environment also reflects positive shifts, contributing to the gradual formation of a slow bull market. Corporate expectations are on the rise, driven by signals of improving economic fundamentals. For instance, the Producer Price Index (PPI) is nearing an upward turning point, suggesting potential profit recoveries for companies across various sectors.

Moreover, fresh policies targeting overcapacity in industries such as steel and coal, implemented in 2025, are expected to enhance operational efficiency. These measures are designed to phase out outdated production, thereby improving industry concentration and optimizing profit margins, further supporting the capital market's growth.

A Sustainable Future for Investors

The convergence of enhanced liquidity, supportive governmental policies, and positive economic indicators is setting the stage for a robust slow bull market. Unlike previous cycles influenced by speculative trading, this emerging trend is rooted in medium to long-term investments led by institutional participants, paving the way for a more resilient capital market overall.

As we look to the future, it appears increasingly likely that the slow bull phase will continue to characterize China's capital market landscape. This sustained period of incremental growth promises investors a market where fluctuations are more predictable and closely tied to real economic progress. Guosen Securities emphasizes that the shift from short-term speculative behaviors to long-term value creation represents a significant maturation of China’s financial system, aligning firmly with the country’s aspirations for economic transformation and high-quality development.

In conclusion, the evolution towards a slow bull market in China reflects multiple converging elements, from institutional investment patterns to supportive policies and improving fundamentals. Such a landscape offers a stable foundation for long-term growth and deep investor confidence as the market navigates through future uncertainties.