China A-Shares Signal Turnaround as Real Rates Fall, CF40 Says
A prominent Beijing think tank argues Chinese equities have turned a corner because falling real interest rates and steady credit growth are offsetting the property slump's drag on valuations.
The China Finance 40 Forum (CF40), a prominent Beijing-based macroeconomic think tank, published a report on Sunday asserting that the nation’s equity markets have moved past the worst of the post-Evergrande slump. The researchers contend that a "more favourable macro environment" is now actively supporting stock valuations, despite ongoing stress in the real estate sector.
China’s domestic A-share market, which tracks companies listed on the Shanghai and Shenzhen exchanges, has broadly maintained an upward trend recently. This recovery has brought the market back to roughly its 2021 levels. It represents a stark shift from the 45.6 per cent collapse the index suffered between its February 2021 peak and September 2024.
For market professionals, the report isolates the specific macroeconomic shifts driving this rebound. CF40 researcher Yu Fei highlighted that inflation bottomed out last year and has risen steadily since. Because real interest rates represent the true cost of borrowing once adjusted for inflation, this dynamic has pushed real rates markedly lower. Lower real rates directly ease the downward pressure on stock valuations by altering the baseline cost of capital.
The analysis also points to the resilience of the broader financial system. Credit growth has moderated over this period, but critically, it never entered a deep contraction. This indicates that while lenders have adjusted to the property crisis, corporate liquidity has not been severely squeezed.
To validate this thesis, the think tank studied stock performance and macroeconomic drivers across 18 deep property slumps globally. The historical data revealed that equity recoveries vary significantly in speed and scale. “These differences show little correlation to home price falls, and they mainly depend on post-slump macro conditions,” Yu wrote.
The implication for investors is that equity market recovery does not require a prior rebound in property prices. As long as supportive government policies sustain credit flows and inflation trends keep real borrowing costs depressed, the structural drag from the property sector may no longer dictate the direction of Chinese equities.
