Capital market diversifying households' asset allocation

China's A-share market has opened 2026 on a positive note. Record turnover, buoyant sentiment and a sharp rally in technology-related segments have propelled the Shanghai Composite Index to above 4,100 points, a 10-year high.

Yet, a measured reading is warranted. Short-term profit-taking pressures are inevitable after a rapid surge. With turnover hitting a record 3.99 trillion yuan ($572.2 billion) in a single session on Wednesday, according to market tracker Wind Info, and risk appetite rising swiftly, some degree of consolidation will not be surprising, nor unhealthy. That caution, however, should not be mistaken for pessimism. The current rally is not built on fragile ground. Corporate profitability is improving, policy and liquidity conditions remain broadly supportive, and valuations remain reasonable by global standards.

Global investment bank UBS sees MSCI China Index's earnings growth reaching around 14 percent or more in 2026, led by internet platforms, high-end manufacturing and Chinese companies expanding overseas.

The outperformance of innovation-led, artificial intelligence-empowered sectors reflects China's broader shift toward high-quality development, yet the longer-term logic behind the rally is also increasingly reinforced by a structural overhaul in China's household wealth.

For decades, Chinese household assets have been heavily concentrated in bank deposits and real estate — sources of returns that have weakened significantly in recent years. According to the World Bank's China Economic Update in December, housing accounted for 47 percent of household assets in 2022, bank deposits 23 percent. Equities, funds and insurance products played a comparatively small role.

As China advances plans to raise rural and urban residential incomes, the capital market will have to play a larger role in diversifying households' asset allocation.

The vast pool of Chinese household deposits — reaching 163 trillion yuan onshore as of November 2025 according to the central bank — represents significant latent demand for equities, providing a solid basis for the market's medium-term rise.

It points to a clear reform agenda: building a stock market that is more friendly to ordinary investors and better aligned with the goal of common prosperity. With more than 250 million A-share investors, over 95 percent of whom are small and medium-sized investors, according to the China Securities Regulatory Commission, improving the market's return profile for ordinary investors is essential. That requires strengthening dividend payout mechanisms, reforming incentives for institutional investors, better regulating quantitative trading and large shareholder share reductions, and enhancing transparency and governance — all of which are underway.

Chen Huaping, vice-chairman of the CSRC, stressed that investor protection will be embedded throughout the entire regulatory process to foster a market environment that is open, fair and just. Since 2018, the capital market has increasingly been treated as a strategic lever for technological innovation.

Now, it is time to reassess its importance from another front — boosting people's income and thus expanding domestic demand, a top priority for China's economy.

Such steps are not only crucial for sustaining the current market trend, but also for facilitating China's broader transition toward a more consumption-driven, technology-oriented and less debt — and export-reliant growth model.

For ordinary households, the key is to recognize this structural shift, improve financial literacy and make informed choices in asset allocation. Short-term volatility will persist, but a more mature, better-functioning equity market offers an increasingly important pathway for households to share in China's next phase of growth.