China's 'technical excellence' in industries such as AI, EVs, robotics, biotech and renewables became increasingly apparent last year.
The recovery in Chinese equities has forced investors to re-engage with a market many had written off as "uninvestable", but analysts argued other EMs should not be ignored.
China began its rebound in 2024 after years of underperformance driven by prolonged Covid restrictions, policy uncertainty and weak domestic demand.
Matthews Asia's Tiffany Hsiao on Chinese innovation and the 'positive surprise' over tariffs
In 2025, the MSCI China index returned 31% - significantly more than the S&P 500's 18% - however the two-speed nature of the recovery highlighted the importance of stock picking.
"Growth is stabilising but is unlikely to re-accelerate meaningfully," said Naomi Waistell, portfolio manager, emerging market equities, at Carmignac.
"Exports sustain as the economic engine, while consumption and property continue to languish."
China's "technical excellence" in industries such as AI, electric vehicles, robotics, biotech and renewables became increasingly apparent last year, according to Shaniel Ramjee, co-head, multi-asset, at Pictet Asset Management.
This, alongside an attractive equity risk premium and a more favourable government policy towards corporates, saw the Pictet EM Multi Asset strategy "aggressively" allocate to China in 2025, at around 20%.
Alpha market
"As of last month, while we have reduced our weight to 13%, we see China as an alpha market over a beta market at this juncture," said Ramjee.
"Allocating selectively to these spheres of industrial excellence would best place investors to benefit from the growth in Chinese earnings."
Carmignac's Waistell noted she intends to stay "highly selective" in China, with alpha remaining key.
BCA Research's Matt Gertken: What matters and what does not in 2026 geopolitics
"For the first time in history, China has genuinely world-class companies across a range of industries capable of delivering better products and solutions at lower prices," said the manager, pointing to AI enablers, the experience economy, wellness, future mobility, education, financialisation and "cannot-live-without platforms".
"Profitability in China has been improving and while valuations in some pockets look stretched as momentum is ridden, the overall market is not back to all-time highs," she continued.
Waistell's "ultimate buy signals" included undervalued quality-growth businesses with strong balance sheets, visible profit trajectories and genuine pricing power.
Gabriel Sacks, lead manager of Aberdeen Asia Focus, said China's drive for self-sufficiency will continue in 2026, and many corporates will benefit from localisation in the semiconductor, green energy and robotics industries.
Sacks' portfolio benefited from a "very strong performance" of its Chinese holdings in 2025, and the manager used the rally to take profits and recycle capital into fresh ideas, prompting an increase in the overall China weighting (including Hong Kong) to around 20% today compared to around 18% in mid-2025.
"Our exposure had been largely split between industrials and consumer-oriented stocks but we have been broadening that recently to global leaders in areas such as biotechnology, robotics and semiconductors," said Sacks.
This included Hesai, a leader in light detection and ranging technology used to enable autonomous driving.
FundCalibre's Juliet Schooling Latter: Managers mixed on how long China's equity revival can last
With the threat of US tariffs seemingly off the table – for now – domestic policy could be the key to further gains.
"A clearer signal from the government supporting domestic consumption, helping to stabilise property markets and/or curbing excess capacity via its ‘anti-involution' campaign would bring confidence back and help unlock excess savings," said Sacks.
Opportunities elsewhere
In the meantime, Kate Marshall, lead investment analyst at Hargreaves Lansdown, said better opportunities lie elsewhere in emerging markets.
While Chinese equities have risen 85.2% over the past decade, the broader emerging market universe has returned 158.3%, she noted.
In 2025, Korea, Vietnam and markets across Latin America and South Africa all outperformed China's headline-grabbing rally.
This highlighted the importance of diversification within emerging markets rather than reliance on a single country, said Marshall.
However, the lead analyst conceded that earnings growth forecasts are set to improve by 2027, when China is expected to grow faster than the emerging market average, and any sustained improvement in earnings could support further share price growth.
She concluded: "China's 15th Five-Year Plan [announced in October] will be closely watched for direction on industrial policy, domestic consumption and technological self-sufficiency."
