(Yicai) Feb. 6 -- The SSE Composite Index, China’s main Shanghai-listed benchmark, has been fluctuating around the 4,100-point mark since late January, but major Wall Street investment banks remain optimistic about its outlook, citing improving liquidity conditions and renewed investor confidence.

The optimism reflects faster foreign capital inflows and a rebound in individual investor sentiment since last month, which could ease selling pressure from government-backed investment institutions via exchange-traded funds and lead to a more supportive liquidity environment, Morgan Stanley said in a recent report.

Morgan Stanley estimates that net inflows from US- and EU-registered mutual funds into China’s stock market reached USD8.6 billion (about CNY59.7 billion) last month, the highest since October 2024. In the same period, the number of newly opened A-share accounts and net inflows of small orders -- transactions below CNY40,000 (USD5,760) -- both reached their highest levels since 2025.

Goldman Sachs, Fidelity International, and Invesco have also voiced optimism about the market’s prospects.

The broad recognition of “Chinese innovation” among investors, together with strong interest in artificial intelligence and robotics, is expected to sustain robust market sentiment throughout 2026, said Fan Xiang, co-head of the investment banking division at Goldman Sachs China.

Fidelity noted that China’s market has become more resilient, with valuations that are attractive compared with similar markets worldwide. The market is regaining vitality, and capital-flow momentum for A-shares and offshore China concept stocks has strengthened, driven by policies supporting consumption, stabilizing the real estate sector, and advancing structural reform, said Stuart Rumble, investment director for Fidelity in the Asia-Pacific region.

“Weak recovery in the real estate sector and geopolitical uncertainties still pose risks, but more stable policies and improved visibility of corporate profits are expected to attract more domestic funds and international investors,” Rumble added.

Continuously improving fundamentals and long-term growth drivers are expected to create a more sustainable structural growth cycle for the A-share market, said Raymond Ma, chief investment officer for China’s mainland and Hong Kong at Invesco.

Corporate profits are sending clear recovery signals, with earnings per share expected to rebound further, while gains in operational efficiency and improved leverage have lifted net profit margins, strengthening the foundation for sustained profitability, Ma noted.

The Invesco China CIO added that China’s market is likely to offer three major investment opportunities this year: industrial upgrading, progress in artificial intelligence applications, and the upgrading of the consumer market.

Editor: Emmi Laine