China's best run since 2017

Chinese stocks are off to a flying start in 2026, with key indices like the Shanghai Composite hitting multi-year highs. Over the past year, Chinese equities have climbed roughly 28%, putting them on track to outperform the S&P 500 by the widest margin since 2017.

What’s going on here?

It started with tech. DeepSeek's debut last January reignited interest in Chinese innovation, while President Xi's meeting with tech leaders a month later signalled a warmer embrace from Beijing. That momentum has spread beyond just semiconductors.

China’s healthcare companies have rebounded about 50% on a wave of billion-dollar licensing deals with global drugmakers, while China’s tech stocks have climbed more than 40%.

Factory activity was positive too. China's manufacturing PMI – a monthly survey of supply chain managers – came in at 50.1 for December, ending an eight-month contraction and beating expectations. Both production and new orders picked up, suggesting the worst of the industrial slump may be over.

What’s the takeaway here?

It's not all green shoots. China's property and utilities markets remain weak, and consumer spending is still soft. Yet Chinese equities still posted about a 28% total return over the past year. The US, despite its own set of concerns, delivered 17%. No single market is without its risks, but no single market needs to be perfect for your portfolio to benefit. Diversifying across regions means you're positioned to capture growth wherever it shows up.

In Other News: South Korea’s having its own rally

In a similar vein, South Korea's Kospi index kicked off 2026 with a fresh record high, extending a 76% rally from last year. The gains have been driven by two forces: insatiable demand for AI chips and a government push to fix corporate governance.

Memory chip makers Samsung Electronics and SK Hynix both dominate the Korean index, and both are riding the AI wave: Samsung’s share value more than doubled in 2025, while SK Hynix’s has jumped nearly four-fold. Semiconductor exports alone brought in a record US$173 billion last year, up nearly a quarter from 2024.

President Lee Jae-myung, elected last June, has made closing the "Korea discount" a priority. The root cause: many Korean firms sit inside family-controlled conglomerates called chaebols, which have historically favoured founding families over outside investors. Even after the rally, Korean stocks trade at a price-to-book ratio of 1.4, less than half the global average of 3.5.

The risk is concentration. Samsung and SK Hynix account for more than half of projected corporate profits. If AI chip demand falters, or if governance reforms stall, the rally could lose steam. For now, though, Korea is proving that structural change can unlock value.

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Simply Finance: Price-to-book ratio

The price-to-book ratio compares a company's stock price to its book value – what a company would be worth if it sold everything it owned and paid off all its debts. Think of it like your net worth: simply add up your assets and subtract what you owe. A ratio of 1 means investors are paying exactly what the company's net assets are worth on paper.

These articles were written in collaboration with Finimize.