Shanghai Composite Index rises 1.5 percent to hover above 4,083.67 points at close on January 6, 2025. Photo: VCG

Chinese A shares rallied strongly after the New Year Day holiday, with the benchmark Shanghai Composite Index rising 1.5 percent to hover above 4,083.67 points on Tuesday, the highest level in a decade. The spectacular rally reflects growing confidence from China's strong economic fundamentals, an analyst said.

According to the Shanghai Securities News, Tuesday marked the 13th day of consecutive gains for the Shanghai Composite Index, which was a record for the past 34 years.

The Shenzhen Component Index shot up 1.4 percent to reach 14,022.55 points on Tuesday with stocks related to brain-computer interface firms and the financial sector leading the gains. The ChiNext Index, tracking China's Nasdaq-style board of growth enterprises, edged up 0.75 percent to 3,319.29 points.

In Hong Kong, the Hang Seng Index continued its upward momentum, rising by 1.38 percent to 26,710.45 points.

Tuesday's gains followed those posted on Monday, when the Shanghai index shot up by 1.38 percent, led by gains in the brain-computer interface sector, insurance, storage chips and innovative drugs.

The gains in the first two trading days of the new year followed a strong year in 2025, during which the Shanghai Composite Index rose 18.41 percent, marking its best annual performance since 2020. The Shenzhen Component Index and the ChiNext Index gained 29.87 percent and 49.57 percent, respectively, according to the Shanghai Securities News.

The stellar performance of the A-share market is coupled with the strong performance of the yuan. The currency hovered near a 32-month high against the US dollar on Tuesday, with the People's Bank of China setting the mid-point rate at 7.0173 per dollar prior to the market's opening on Tuesday.

Analysts pointed out the correlation between the A-share market and the Hong Kong market, as the two often move in tandem. They also highlighted China's strong economic fundamentals and the front-loading of supportive policies.

"The market performance in 2026 is expected to be a continuation of the 2025 rally, as the fundamental drivers of the current bull run remain intact. These include sustained policy support, a migration of household savings into the capital markets, and shifting sentiment among foreign investors who are becoming increasingly constructive on China's technological and innovative capabilities following consistent breakthroughs in both hardware and software," Yang Delong, chief economist at Shenzhen-based First Seafront Fund, told the Global Times on Tuesday.

Coupled with policy support in the real economy, China's capital market is poised to enter a prolonged window of opportunity for long-term growth, Yang predicted.

Bullishness toward Chinese assets, particularly technology companies, has become a consensus for this year among both domestic and foreign institutions. Ample liquidity and market sentiment are cited as the primary drivers for a possible bull run.

In a report published on Monday, Goldman Sachs analysts forecast continued growth for Chinese stocks, predicting gains of 15-20 percent in 2026 and 2027, noting that "Chinese equities currently trade at meaningful valuation discounts compared to their international peers." 

Highlighting key drivers for the potential re-acceleration of profit growth including the adoption of artificial intelligence, Chinese companies' "Going Global" trends, and "anti-involution" policies, the Goldman Sachs report noted that "the strong diversification value of China for both international and domestic investors should encourage further capital migration into the markets."

China has allocated 62.5 billion yuan ($8.88 billion) in ultra-long special treasury bond funds in advance to support the trade-ins of consumer goods for 2026, according to a Xinhua report in December, which cited the National Development and Reform Commission, the country's top economic planner.