The Shanghai Stock Exchange (SSE) is navigating the final full trading stretch of 2025 with a dual narrative: a steady, policy-sensitive main board and a high-energy STAR Market, where listings of “hard tech” companies, particularly AI chipmakers, are shaping investor sentiment. As of December 21, 2025, the benchmark Shanghai Composite Index closed at 3,890.45 after a modest rise of 0.36% in the previous session, signaling a stable yet cautious market environment.
Friday’s gains offered a brief respite from earlier fluctuations during the week, with both the blue-chip CSI300 and the Shanghai Composite experiencing gains of around 0.3%. However, the week ended relatively flat, as an earnings lull kept investors on the sidelines in search of clearer policy signals. This “flat but tense” market behavior has become increasingly familiar, supported by policy expectations and selective optimism around innovation, but hampered by soft domestic demand and ongoing property sector challenges.
Despite a strong annual performance — the MSCI China Index is up 28.7% for the year, yet down 7.4% since September — sentiment has cooled. Analysts attribute this to profit-taking and soft economic data, which raises questions about the adequacy of policy support to sustain growth momentum. For investors, the perception of a “policy put,” or the belief that Beijing will intervene during periods of volatility, is a crucial factor in pricing market risks.
Economic indicators from mid-December reveal weaker-than-expected data, with November’s industrial output growth slowing to 4.8% year-on-year and retail sales increasing by only 1.3%, the slowest pace since late 2022. This decline reflects the considerable drag from the property downturn and a reduction in consumption support measures, affecting overall confidence in the market. The World Bank’s December update projected growth at 4.9% for 2025, tapering to 4.4% in 2026, emphasizing subdued consumption and ongoing property adjustments.
On the monetary policy front, the People’s Bank of China (PBOC) has maintained the one-year and five-year Loan Prime Rates at 3.0% and 3.5%, respectively, marking the seventh consecutive month of no changes. This stability comes amid challenges like record-low net interest margins for banks, currently reported at 1.42%. However, expectations for easing are shifting towards early 2026, with analysts like those at Citi anticipating possible cuts as early as January.
As the SSE prepares for 2026, a key focus will be on improving capital-market quality through governance reforms. The China Securities Regulatory Commission (CSRC) aims to encourage higher dividend payouts and share buybacks among listed firms to foster investor confidence. This initiative targets long-standing skepticism regarding the reliability of growth translating into shareholder returns, a crucial factor for both domestic and foreign investors.
In contrast to the measured pace of the main board, the STAR Market has become a focal point for dynamic growth. Recent debuts have showcased this volatility, with AI chipmaker MetaX Integrated Circuits surging by as much as 693% on its debut on December 17, reflecting the market’s enthusiasm for domestic chip production amid geopolitical tensions. Similarly, Moore Threads, often referred to as “China’s Nvidia,” saw its shares rise over 400% on its initial public offering just weeks earlier.
The stark valuation disparity between the STAR Market and the broader Shanghai Composite illustrates investor sentiment: while the STAR Chip index trades at an impressive 118 times earnings, the Shanghai Composite sits at roughly 12 times. This discrepancy highlights a market divided between cautious valuations and the high expectations set for technological advancements in the AI space, which some forecasts project to grow significantly by 2029.
As 2025 draws to a close, the SSE’s future hinges on its ability to finance innovation while ensuring investor confidence. KPMG’s report indicated that A-share IPO fundraising reached RMB 163.7 billion in 2025, a 23% increase from the previous year, while the STAR Market contributed RMB 34.6 billion from 18 deals. The upcoming year poses a challenge for Shanghai to balance promoting national technology priorities with maintaining market quality and investor trust.
Looking ahead, the Shanghai Composite’s position near the 3,900 level raises questions about whether the market will end 2025 in consolidation or prepare for a new uptrend in 2026. Key factors to monitor include potential shifts in monetary policy, the CSRC’s governance initiatives, and the impact of economic data on investor sentiment. The ongoing success of the STAR Market, particularly in high-tech sectors, will also play a pivotal role in shaping broader market dynamics.
On December 21, 2025, the SSE increasingly resembles a two-speed system: the broader Shanghai Composite, supported by policy expectations, contrasts sharply with the STAR Market’s speculative fervor driven by national tech priorities and IPO demand. The coming year will likely determine whether Shanghai’s trajectory is one of steady growth or tumultuous corrections.
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