China's stock rally may see a 'meaningful correction soon,' BofA says

• China’s markets have been posting strong gains for weeks. But BofA warns there may be a correction.
• China’s market rally looks similar to 2015’s boom and bust cycle, BofA strategists say.
• At the time, China was trying to rebalance its economy, and Alibaba’s NYSE IPO was a key moment for Chinese tech.

China’s stock markets have been a bright spot in recent weeks amid a bloodbath on Wall Street — but the rally may not last.

Strategists at BofA Securities warned there may be a “meaningful correction soon” to the rally in Chinese stocks. They highlighted some “fundamental similarities” between the current cycle and China’s stock market crash in 2015.

BofA strategists said in their Monday note that the current rally in Chinese stocks is similar to the cycle a decade ago in terms of economic rebalancing, policy stimulus and reforms, and technological breakthroughs.

In 2015, the Chinese government aimed to shift its export- and investment-oriented economy to one driven by consumption and services. Alibaba’s IPO on the New York Stock Exchange was also a watershed moment for China tech.

Similarly, stock markets in Hong Kong and China have posted strong gains in recent weeks following the breakout rise of DeepSeek, a cost-efficient Chinese AI model. Beijing is also boosting private consumption again.

The Hang Seng China Enterprises Index, or HSCEI, has risen 26% so far this year, while the MSCI China Index has risen 24%.

In contrast, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average are all in the red this year.

“Performance of the HSCEI/MSCI China in the past 17mths trended closely to the trajectory a decade ago, making us worry that we might be approaching some correction soon,” wrote BofA strategists.

Some investors in China are nervous, wrote the analysts.

“People generally agree with our structural bullish view, but are reluctant to chase at this level,” they wrote, citing an investor meeting in Shanghai last week.

Some onshore long-only investors are worried about China’s economy’s lack of fundamental improvement in employment, deflation, and credit demand. They are also concerned that negative news, including Trump’s tariffs and geopolitical tensions, has largely been overlooked.

To be sure, China’s stock markets are not just gaining due to DeepSeek’s breakthrough moment. Investors concerned about US President Donald Trump’s economic and trade policy changes have also been reallocating some of their funds into other markets, sending global equities rallying too.

However, some analysts are wary about calling it a sustainable run because the US economy — the world’s largest, accounting for about a quarter of global GDP —could dive and affect markets far beyond its borders.

As Dario Perkins, an economist at GlobalData.TS Lombard wrote on Monday, “make no mistake — a US recession would bring down the entire world.”