Bubble risks grow as China's stock bull run defies economy angst

China's economy is buckling under the weight of tariffs and a deep-rooted property crisis, yet stocks are extending their bull run — a disconnect that is stirring doubts on the rally's staying power.

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In just the past month, onshore stocks have added almost a trillion dollars to their market value, the Shanghai Composite Index has hit a decade-high, and the CSI 300 Index has taken its advance from 2025's low to more than 20 per cent. That is when nearly every recent economic indicator has brought red flags for investors.

The rally has been driven by cash-rich investors shifting into stocks amid a lack of alternatives. While the market's steady advance may suggest less risk of a sudden correction, some analysts are warning that a bubble is in the making. Nomura Holdings is cautioning against "irrational exuberance" while TS Lombard is calling the mismatch a stand-off between "market bulls and macro bears".

"Markets might be expecting, either correctly or incorrectly, that macroeconomic fundamentals will improve," said Mr Homin Lee, senior macro strategist at Lombard Odier in Singapore. "But a bull market will not be sustainable if inflation remains close to 0 per cent and corporate pricing power faces severe headwinds from weak domestic demand."