While the rally has been strong, we believe it is sustainable — underpinned by a set of reinforcing structural, cyclical, and policy drivers.
On the structural side, China’s push for technological self-reliance is accelerating. The late-August launch of DeepSeek v3.1 highlights how quickly domestic AI capabilities are advancing. At the same time, Alibaba is committing significant resources to scale its AI infrastructure. Crucially, Alibaba Cloud is not just China’s largest provider but one of the top four hyperscale cloud players globally, alongside Amazon Web Services, Microsoft Azure, and Google Cloud. This places Alibaba in a rare group with the scale, capital intensity, and technical breadth required to operate hyperscale platforms — spanning massive data centres, advanced networking, and the compute power needed to support large AI models.
This matters because hyperscale cloud platforms are the backbone of the AI economy. Every new model, from domestic large language models (LLMs — AI models trained on massive datasets to generate human-like text) like DeepSeek, to globally recognised ones such as ChatGPT, Claude, and Gemini, requires compute power, storage, and deployment environments that only hyperscalers can provide.
Within China, a growing ecosystem is taking shape to meet this demand: Alibaba and Baidu provide the cloud infrastructure that powers model training and deployment, Tencent drives applications by embedding AI into gaming, fintech, and social platforms, while SMIC underpins the hardware side as the country’s leading semiconductor foundry essential for AI chips. Together, these listed players form a complementary network that strengthens China’s AI ambitions and reinforces the structural case for the rally.
These structural tailwinds are reinforced by cyclical liquidity conditions that further underpin the rally. With deposit rates falling, households are shifting savings toward financial assets. Equities today make up only 10% of household balance sheets, leaving significant room for reallocation. At the same time, the Politburo has placed capital markets firmly in focus, signalling further reforms and support.
Incremental policy measures — property stabilisation initiatives, infrastructure catch-up, and quasi-fiscal injections — further reinforce a pro-growth stance.
Taken together, the factors that will support the market are:
– Technology self-reliance and a deepening AI ecosystem
– Supportive liquidity and household portfolio shifts
– Policy emphasis on capital markets
– Incremental domestic policy measures
We recognise that markets rarely move in a straight line, and the pace of recent gains is unlikely to be sustained. That said, with the combination of structural, cyclical, and policy support, we expect a durable upward trend. Rather than a one-way surge, the rally is more likely to take the form of a measured grind higher.
Written by Ray Sharma-Ong, Deputy Global Head of Multi-Asset Bespoke Solutions, Aberdeen Investments.
