Looks like the bulls are back in the China shop, pushing stocks up for the first quarter of the year on the back of stronger economic data and better-than-expected corporate earnings.
The benchmark MSCI China Index gained 13 percent in the first three months of 2017, while the Shanghai Composite added 3.8 percent. Over the last year, mainland-traded stocks have posted a pretty steady ascent — markets in Shanghai and Shenzhen have added 7 percent and 4.5 percent, respectively.
"This past quarter was a great one for China stocks," said Larry Hu, China economist at Macquarie, attributing the rise to solid earnings growth, a strengthening property market and a stable yuan.
It's a sign that perhaps confidence is returning to China, the world's second-largest economy. For years, the fear had been that the country's growth would implode in a "hard landing," disrupting the global economy.
"There's been this cyclical recovery — China's in an easing mode … It shows up in the economic numbers, and it shows up in many company earnings reports," said Brendan Ahern, chief investment officer at Krane Funds Advisors. It's a "stealth bull market."
China restricts international investment on its domestic stock markets, but foreign investors can seek exposure by trading Chinese firms listed in Hong Kong or New York. They can also buy through special programs set up by the Chinese government to boost investment flows between the mainland and the rest of the world.
While much of the gains are coming from investors buying outside the mainland, domestic markets are also seeing a bump. Shanghai and Shenzhen stocks have posted a healthy start to the year, even though "people are still a little bit hesitant," said Francis Cheung, head of China and Hong Kong strategy at brokerage firm CLSA.
A booming property market and recent central bank policy moves have spooked some Chinese investors, who are partly still reeling from the spectacular mid-2015 crash when trillions in market value vanished.
But Cheung said he sees things continuing on the up and up, especially as "the signals are clear that the government does want the stock market to do well this year." That's because a strong equity market could help with managing corporate debt risk as companies seek access to financing by listing publicly — one way to keep at bay China's ticking debt bomb.
But while investor sentiment has been buoyed by a Chinese economy that looks stronger than it did a year ago, experts say that plenty of core challenges remain.
For one, Beijing has talked big on reforms for years, though nothing beyond piecemeal moves have materialized. This year, painful overhauls are again taking a backseat as the government prioritizes stability, especially given an upcoming leadership change that occurs once in five years. Beijing has even reverted to its old playbook, such as pushing forth stronger capital controls to stabilize the yuan, a surge of easy credit and massive state spending to support growth.
Optimists, however, are holding out, saying President Xi Jinping is taking the time now to put supporters in place to help push through the big reforms later.
U.S.-China relations could also pose a hiccup: President Donald Trump has continued to talk tough against China, heightening worries of a trade war.
"Some of the rhetoric out of DC is probably giving investors pause," Ahern said. But "President Xi and Trump meeting will hopefully set us on a path of better communication."
Yet despite these potential risks, experts remain laser focused on Chinese markets, and bullish given positive fundamentals.
"The economic data looks very good," Cheung said.
"To me, the clearest thing to buy is actually e-commerce and the luxury names," he added, pointing to an online sales jump at the start of the year.