GVIA Perspective | China’s Value Investment Era Has Arrived

For a long time, China’s A-share market was often labeled as a market of theme speculation, momentum chasing, and short bull markets followed by long bear phases, with short-term speculation once dominating. Yet as of 2026, irreversible qualitative changes are taking place in the capital market’s underlying logic, operating rules, capital structure and profit-making paradigms: the era of speculation driven by luck, sentiment and fads has come to an end, and a full-fledged value investment era centered on fundamentals, cash flow and long-term returns has arrived. This is not a short-term style rotation, but a historic trend jointly driven by economic transformation, institutional improvement, market maturation and the popularization of quantitative trading.

I. Market Valuations Return to Rationality, Deep Value Opportunities Fully Take Shape

The cornerstone of value investment is that quality assets trade at fair prices. After years of market clearing and valuation digestion, overall A-share valuations now sit at historic lows, with bubbles fully cleared and ample margin of safety. As of early 2026, the Shanghai Composite Index trades at a P/E of only 17.69x and a P/B of just 1.54x, well below their 10-year averages (22x P/E, 1.8x P/B), and still with broad room for recovery from the 2007 bull market peak (45x P/E, 6.9x P/B). Quality sectors such as banks, high-end manufacturing, traditional Chinese medicine and consumer leaders have delivered steady earnings growth without overstretched valuations, fully reversing the former distorted pattern of overvalued themes and undervalued quality stocks.

In 2026, the A-share market officially completed its core shift from valuation recovery to earnings-driven growth. Past rallies relied heavily on policy and liquidity-driven multiple expansion, marked by high volatility and weak sustainability. Today, the market has entered a new phase of fundamental pricing. Goldman Sachs data shows that listed company earnings growth will jump from 4% in 2025 to 14% in 2026, underpinned by three engines: AI industrialization, overseas expansion of the real economy, and industry de-involution. Meanwhile, the market has moved away from uniform rallies and sell-offs, with structural divergence becoming the norm. In the first half of 2026, pure-theme, earnings-lacking small-caps continued to weaken, while core assets with stable cash flow and sound governance strengthened consistently. This divergence that weeds out the false and retains the genuine is a hallmark of value investing in mature markets.

II. Quantitative Trading Goes Mainstream, Squeezing Room for Short-Term Speculation

The explosive expansion of quantitative trading in recent years has become a core variable reshaping the A-share ecosystem, confirming that the path of short-term speculation is narrowing, and only value investing can navigate the intensifying game. In 2026, quantitative funds account for over 25% of average daily turnover in the A-share market. High-frequency algorithms and millisecond order execution have fully penetrated short-term trading, with advantages of emotion-free operation, round-the-clock spread capture and ultra-fast risk control that retail investors cannot match.

First, short-term price spreads are quickly arbitraged away by algorithms; the intraday swings and news-driven arbitrage that retail investors once relied on for profits no longer deliver stable returns. Second, theme rallies have become far less sustainable; the classic price-boosting tactics of hot money funds are frequently met with reverse selling by quant strategies, sharply raising the loss probability of chasing breakouts. Third, constrained by execution latency and emotional swings, retail investors have far lower fault tolerance than emotion-free, strictly risk-controlled quantitative programs. Short-term speculation has become a zero-sum game with extremely low odds of winning.

When short-term spread strategies are blocked, capital naturally shifts toward corporate earnings, long-term growth and stable dividends — areas unaffected by high-frequency trading. Value investing, anchored to intrinsic value and generating returns from industry growth and dividend compounding, completely avoids head-to-head confrontation with quantitative short-term strategies, making it a far more sustainable investment path. The more quantitative trading develops, the more the market will abandon short-term speculation and embrace long-termism.

III. Fully Improved Institutional System Lays the Ground Rules for Value Investing

The popularization of value investing cannot be separated from standardized, law-based institutional support. Over the past three years, A-share regulatory reforms have deepened continuously, curbing speculative excesses at the source.

First, the normalized delisting mechanism has taken effect. Under strict financial, trading and compliance delisting criteria, dozens of underperforming companies are cleared from the market each year, eradicating the chronic problem of shell speculation and shell preservation, and forcing capital to flow toward quality real-economy assets.

Second, corporate governance of listed companies has improved. Regulators have strengthened dividend discipline, goodwill management and rules on major shareholder reductions, pushing companies to focus on their core businesses. The universe of high-dividend stocks keeps expanding, with the dividend returns of many blue chips now exceeding those of bank wealth management products and government bonds. Returns from long-term holding have shifted from pure price gains to the dual compounding of dividends and organic growth, aligning with the core logic of value investing.

Third, information disclosure transparency has improved significantly, with unprecedented enforcement against financial fraud and insider trading, greatly reducing the speculative room created by information asymmetry. This allows ordinary investors to make decisions based on real fundamentals, breaking free from the passive pattern of betting on news.

IV. Transformed Capital Structure: Institutional Value Pricing Dominates the Market

Market style is essentially a reflection of capital structure. In the past, retail dominance brought emotional and short-term characteristics; today, the A-share market has entered an era of institutional dominance, with value investing as the institutional consensus.

On the domestic front, long-term institutions including public funds, private funds, insurance funds, social security funds and annuities have continued to grow in scale, with significantly longer holding periods and assessments focused more on medium- and long-term returns. Their core holdings are all value and dividend assets with solid fundamentals. Even among quantitative strategies, leading private funds have reduced high-frequency short-term positions and increased allocation to medium- and long-term fundamental quant strategies, moving closer to value logic.

On the foreign front, global capital continues to increase exposure to China’s core assets. Goldman Sachs maintains an “overweight” rating on Chinese equities, forecasting average annual gains of 15%–20% for the MSCI China Index and CSI 300 Index over the next two years. The pricing logic of mature overseas capital further pushes the A-share valuation system toward value orientation.

Institutional holdings now account for more than half of the A-share market’s total market capitalization. The characteristics of institutional pricing, long-term holdings and fundamentals as king have reshaped the market ecosystem, turning value investing from a niche choice into the market mainstream.

V. Deepening Economic Transformation Creates Fertile Ground for Long-Term Value Investing

The ultimate foundation of value investing is high-quality growth in the real economy. China’s economy has bid farewell to extensive expansion and entered a stage of high-quality development, providing abundant industry dividends for value investing. In 2026, domestic GDP is expected to maintain a steady growth rate of around 5%, with mild rises in CPI and PPI and steady recovery in industrial enterprise profits, providing a stable macro environment for the long-term operation of listed companies.

On the industry front, value tracks keep expanding: traditional advantageous industries have completed market clearing, with leading firms establishing oligopolistic positions through technology, scale and channel barriers, greatly improving earnings stability and cash flow quality and becoming low-volatility value core holdings. Emerging industries such as AI industrialization, high-end equipment, new energy, biomedicine and domestic consumer brands have embarked on long-term growth cycles driven by domestic substitution, technological breakthroughs and overseas expansion, giving rise to a large number of quality targets with both growth and safety. Today’s A-share market has transformed from a capital-driven market of uniform ups and downs into a value-driven market where quality rises and poor quality falls. Value investing has become a practical, replicable system.

VI. Rising Investor Maturity Embeds Value Principles Deeply in Market Sentiment

The popularization of value investing ultimately rests on the evolution of investor cognition. After multiple rounds of bull and bear market lessons, combined with the real-world warning of losses from quantitative trading, A-share investors have fully abandoned get-rich-quick speculative fantasies, with long-termism and rational investing becoming the consensus.

Market trading characteristics have shifted markedly: high-flying theme stocks find no buyers at the top, while low-priced quality stocks continue to attract capital inflows. Market-wide short-term turnover has declined year by year, and the proportion of medium- and long-term holdings keeps rising. Investors no longer fixate on intraday fluctuations and hearsay, but pay more attention to fundamental indicators such as business models, core competitiveness and cash flow quality. This fundamental shift in cognition has laid a solid mass foundation for value investing.

Conclusion

Looking at the century-long patterns of global capital markets, the transition from speculative fervor to value rationality is an inevitable path for all mature markets, accelerated by the popularization of quantitative technology. Standing at the new starting point of 2026, six core conditions have fully matured and are resonating: low-valuation margin of safety, law-based institutional safeguards, quantitative squeezing of short-term speculation, institutionalized pricing systems, high-quality industry dividends and rational investor mentality. The golden era of value investing in China has arrived.

Going forward, the A-share market will no longer see bubble-fueled uniform bull markets, and short-term trading competition will continue to intensify. Instead, what lies ahead is a structural, long-term, compounding value bull market. Sustainable investment returns will ultimately break away from short-term games and return to corporate growth and earnings, and to the compounding value of time. Following the trend, embracing quality, holding for the long term and focusing on fundamentals is the most certain wealth formula for China’s capital market today.