SHANGHAI, 15 February 2026 – China’s equity market rally is showing signs of fatigue as deteriorating corporate earnings and weakening consumer demand raise concerns over the sustainability of one of Asia’s strongest recent bull runs.
After months of optimism driven by policy support and investor enthusiasm, analysts are now warning that disappointing earnings could undermine confidence and stall further gains. Corporate profit pre-announcements for the final quarter of 2025 have shown a “major deterioration,” reflecting structural economic challenges and softer business conditions.
The shift in sentiment highlights growing investor caution as China’s economic recovery proves uneven, with domestic demand and corporate profitability struggling to maintain momentum.
Earnings Weakness Signals Structural Challenges
China’s stock market rally had been fuelled by expectations of economic stabilisation, government stimulus, and improved business performance. However, recent earnings guidance has painted a more fragile picture.
Major investment banks have flagged significant deterioration in corporate earnings, particularly in sectors linked to consumer spending and cyclical industries. The weakening profit outlook suggests that recent market gains may have been driven more by sentiment and policy expectations than by fundamental improvements in corporate performance.
At the same time, economic indicators point to subdued consumer demand, reflecting lingering caution among households despite stimulus measures introduced to support economic recovery.
This combination of soft demand and weaker earnings is raising doubts about whether China’s equity market can sustain its recent upward trajectory.
Stimulus Impact Begins to Fade
China’s government has implemented various stimulus measures over the past year, including liquidity injections, targeted support for key industries, and efforts to stabilise the property sector.
These policies initially helped restore investor confidence and triggered strong equity inflows, particularly into technology and growth sectors.
However, analysts now suggest that the positive effects of these measures may be moderating, especially as some stimulus programmes are scaled back and economic recovery remains uneven.
The fading impact of policy support underscores the importance of organic economic growth and corporate profitability in sustaining market rallies.
Investors Shift Toward Caution
As earnings concerns intensify, investor sentiment is becoming more cautious.
Portfolio managers are increasingly selective, focusing on companies with strong balance sheets, resilient earnings, and exposure to structural growth sectors such as artificial intelligence, semiconductors, and advanced manufacturing.
At the same time, investors are reassessing valuation levels, particularly after strong gains earlier in the rally.
The shift reflects broader concerns about China’s economic trajectory, including structural challenges in the property sector, demographic trends, and global geopolitical tensions.
China Remains Critical to Global Markets
Despite near-term challenges, China remains one of the world’s most important equity markets and a key driver of global economic growth.
Its technology sector, manufacturing base, and role in global supply chains ensure continued investor interest, particularly among long-term institutional investors.
For Asian markets, including Malaysia, China’s economic performance carries significant implications.
Malaysia’s semiconductor industry, electronics exports, and commodity sectors are closely linked to China’s industrial activity and consumer demand.
A sustained slowdown in China’s corporate earnings could therefore influence broader regional market performance.
Long-Term Outlook Hinges on Structural Reforms
Looking ahead, China’s equity market outlook will depend heavily on structural reforms, economic stabilisation, and the effectiveness of policy support.
Investors will closely monitor corporate earnings trends, consumer demand recovery, and government policy direction.
While near-term volatility may persist, China’s long-term economic fundamentals and strategic importance in global supply chains continue to support its investment case.
For investors, the current phase represents a transition, from a sentiment-driven rally to a fundamentals-driven market.
Corporate earnings, rather than policy optimism alone, will determine the next phase of China’s equity market cycle.
