UBS Equities-China Equity Strategy _Gauging the potential for household s...-117809936

ab18 September 2025Global ResearchChina Equity StrategyGauging the potential for household savings to enter the equity marketA-share rally appears to be driving household asset reallocationThe upward trend for A-shares has steepened since August with major indices breaking through the October 2024 highs. This has created a money-making effect that is gradually attracting investors off the sidelines, while other asset classes face redemption pressure; bond funds growth has slowed recently, while money market funds have declined for two straight months. This indicates a shift in household wealth from conservative deposits and wealth management (WM) products to equities. We note a "see-saw" effect between stock and bond markets has pushed up bond yields. Elevated trading turnover, but no sign of overheating retail sentimentDespite recent upticks in daily turnover, margin financing balances and newly opened monthly accounts, we note no sign of overheating retail sentiment. New A-share investors reached 1.5m in August 2025E, up 165% YoY but far below the 3.8m in October 2024. In addition, YoY growth of new margin accounts is significantly higher than new accounts on the Shanghai Stock Exchange (SSE). The rapid rise in margin financing balance underscores the role of leveraged funds as a key driver of the ongoing A-share rally. Five channels for household savings to enter the equity market1) Single stocks: retail inflows are primarily directed to small-cap stocks. Therefore when A-share trading turnover picks up, CSI 1000 tends to outperform CSI 300. 2) ETFs: amid improving market sentiment, broad-based ETFs have recorded redemptions, while thematic ETFs continue to attract net inflow. Large-scale passive inflows have further boosted returns for industry leaders. 3) Mutual funds: as the stock market recovers, equity funds start to outperform benchmarks. New fund issuance as a lagging indicator should gradually rise. 4) Insurance: guaranteed-return insurance products have gained popularity and insurers are increasing A-share allocation. 5) Shift to "fixed income +" WM/funds: we estimate a 1% shift from fixed income WM products to "fixed income +“ products to attract cRmb270bn to the market. Assuming a 10% equity allocation to these products would translate to Rmb27bn in net inflow to A-shares. If the equity allocation of "quasi-fixed income +" funds rises to the five-year average of 11%, an additional Rmb80bn could flow into the A-share market.We like "growth" with potential rebalancing between large and small capsFor style allocation, we believe "growth" style would outperform "value" due to improved market sentiment and a positive medium-term outlook. However, due to the low possibility of a sharp jump in turnover, small cap stocks' excess returns may not expand even though they significantly outperformed the market in H125. As A-shares recently outperformed the HK market, some mutual funds may increase A-share allocation. Insurers' preferenc