The real force powering China’s market rally isn’t mom-and-pop investors this time, says Goldman Sachs

• Institutional investors — not retail traders — are powering China’s stock rally.

• China’s rally may have room to run as households hold only a small slice of wealth in stocks.

• Goldman Sachs is sticking with its overweight call on Chinese stocks.

China’s stock markets have been on a hot rally after years of gloom, and Goldman Sachs says the bull run may have further to go.

That’s because, contrary to popular narrative, China’s millions of mom-and-pop investors aren’t the ones powering the surge.

Data show that institutional investors have actually provided much of the capital, wrote analysts at Goldman Sachs in a Thursday note.

Chinese equities have added about $3 trillion in market value this year across Hong Kong and mainland markets, according to Goldman Sachs. The CSI 300 index of large mainland companies has jumped 26% since April, and the MSCI China index alone has climbed over 35% year-to-date.

The surge comes on the back of heavy institutional buying, including onshore mutual funds that have slashed cash ratios to five-year lows as they rushed into stocks.

Meanwhile, domestic insurers lifted their equity holdings by 26%, while domestic hedge funds have grown assets under management from 5 trillion Chinese yuan in September 2024 to 5.9 trillion yuan, or $830 billion, now.

Foreign investors have also piled in. Goldman’s data showed its global hedge fund clients made their biggest one-month move into mainland China’s A-shares in years.

Chinese households hold about $5 trillion in equities — roughly a third of the total Chinese equities market — while most of the rest is dominated by global and domestic institutional investors.

Goldman analysts say they expect Chinese households to gradually put more money into stocks, since they remain underweight compared to global peers. Just 11% of Chinese household financial assets are in equities or mutual funds, versus about 32% in the US.

With property prices down sharply from their peak and bank deposits yielding under 2%, families may slowly redirect more wealth into equities.

Retail sentiment, meanwhile, is still “nowhere near the euphoric levels in mid-2015 or late 2020,” according to Goldman. If enthusiasm returned to those highs, the CSI 300 could gain another 18% to 27%.

Goldman’s report came amid concerns about the market overheating, particularly in the Chinese tech stock rally that was first sparked by the breakout AI model DeepSeek early this year.

But the analysts wrote that valuations don’t look stretched and Chinese shares still trade at a discount to developed-market equities.