Following the successful conclusion of the Two Sessions, the government work report explicitly called for stabilizing the property and stock markets, sending a strong positive signal of robust support for capital market development. Currently, China's capital market is experiencing a sustained, steady bull market. Since September 24, 2024, a period of one and a half years, the market has gradually confirmed this trend of a prolonged, moderate bull run. Although the Shanghai Composite Index has seen some fluctuations and adjustments after surpassing 4000 points, the overall pattern of a slow, long-term bull market remains unchanged.

The logic behind this market trend is, first and foremost, policy support. Important meetings have consistently emphasized vigorously developing the capital markets. This bull market carries significant historical missions. There are at least three key objectives: First, through this sustained bull market, increase residents' property income, thereby effectively boosting consumption and stimulating domestic demand, creating a virtuous cycle. This can partially offset the negative wealth effect of falling housing prices on household assets, encouraging residents to spend. Second, as investors gain substantial property income from this bull market, some will use it to purchase homes and improve their living conditions, which helps stabilize the property market and support a halt in price declines. Third, this bull market supports the development of new quality productive forces, enabling more technology and innovation-driven companies to list and gain crucial capital, fostering future tech leaders and finding a second growth curve for China's economy. Therefore, policy support for the capital markets is consistent.

Secondly, a major shift of household savings into the capital markets is underway. In recent years, due to weakened confidence in the property market, reluctance to buy homes, and decreased investment willingness among businesses and households, household deposits have grown significantly. Statistics show that Chinese household deposits now exceed 165 trillion yuan, having increased by over 60 trillion yuan in the past five years. These deposits currently face very low interest rates, with one-year time deposit rates around 1.2%. Notably, approximately 50 trillion yuan in time deposits are maturing this year. These deposits previously earned over 3% interest, but upon renewal, will only yield about 1.2%. A portion of these household deposits is expected to seek new investment opportunities, and this sustained bull market provides a favorable entry point. At the beginning of this year, new fund issuance surged significantly, with equity fund sales showing clear recovery. Last year, being the first year of the bull market, many investors were still hesitant. Historically, the second year of a bull market typically sees a substantial increase in new fund issuance. Recently, several new funds have seen sales exceed 5 billion yuan, indicating that as the bull market trend solidifies, more investors are turning to the stock market, either directly buying stocks or through funds, providing a continuous inflow of incremental capital.

Third, stronger capital markets are also being driven by inbound foreign investment. In recent years, China has achieved technological breakthroughs in areas like artificial intelligence, large data models, humanoid robotics, and semiconductors, alleviating many foreign concerns. This demonstrates that China is not lagging behind the US in AI and may even lead in certain AI applications. Chinese large models now account for 60% of usage share, surpassing US models, partly due to their open-source nature and lower costs, highlighting our advantages. Furthermore, in areas like humanoid robots, China possesses complete supply chains and lower production costs, positioning it for future global leadership in manufacturing and sales. Unique advantages in AI applications significantly boost foreign confidence in the Chinese market. Therefore, although recent market adjustments, influenced by escalated Middle East conflicts in March, caused significant volatility, these are short-term fluctuations and are not expected to alter the medium to long-term trajectory of the A-share bull market. Maintaining confidence and patience is crucial.

The 15th Five-Year Plan mentions improving capital market functions. Capital markets serve both financing and investment purposes. Previously criticized for emphasizing financing over investment, recent reforms aim to achieve balanced development. A healthy capital market should effectively serve both functions. Financing involves providing real capital support to promising companies, enabling the capital market to fund the real economy and facilitate listings for tech innovators. Investment allows the public to gain property income through stock and fund investments, creating a virtuous cycle. When investors share in corporate growth returns, they are incentivized to allocate more capital, strengthening the market. Thus, realizing these functions requires reforms that protect small and medium investors, ensuring a fair, transparent, and just market environment.

Currently, China's economy is in a transition phase. The divergence across sectors can be described by an ancient poem: "A thousand sails pass by the shipwreck; ten thousand saplings thrive ahead of the withered tree." Sectors impacted by economic transition, like real estate and related industries, may appear bleak, while emerging industries flourish with substantial daily capital inflows. Finding a second growth curve necessitates nurturing more emerging industries and supporting tech companies, which relies heavily on capital market support. Just as Silicon Valley relies on Wall Street, a developed capital market is essential for tech companies to access vital funding, enabling the rise of giants like NVIDIA, Tesla, Amazon, Apple, and Google. The role of capital markets in fostering innovation and economic development is evident. With increasing national emphasis on capital markets, post the new "National Nine Articles," comprehensive reforms promote healthy development, allowing investors to share in economic and transitional gains, forming a virtuous cycle. This sustained bull market is expected to provide a sense of gain for more investors, enabling them to benefit from China's economic transition through stock and fund investments, especially when traditional industries face profitability challenges.

The trend of this prolonged bull market is well-established, marking a positive start. It is hoped that all sectors will actively nurture this trend to ensure its continuity. In 2025, the market exhibited highly divergent performance, where a barbell strategy proved effective: one end focused on technology, the other on undervalued dividend stocks, with many bank stocks hitting new highs. Entering 2026, the barbell strategy remains relevant due to significant sector divergence during economic transition. However, while one end still emphasizes technology innovation, the other may shift gradually from dividend stocks to resource stocks and heavy-asset industries, which are traditional blue-chips. Recently, major investment banks like Goldman Sachs and Morgan Stanley have highlighted the concept of HALO assets—industries with heavy assets and low obsolescence rates. We are in the midst of the fourth technological revolution, characterized by widespread AI adoption. Investors should focus on industries resilient to AI displacement and those accelerated by AI technology, representing the two ends of the barbell. Many traditional industries face replacement risks with increased AI application.

For the technology innovation direction, key areas mentioned in the 15th Five-Year Plan, such as humanoid robotics, chips/semiconductors, computing power/algorithms, energy storage, biopharmaceuticals, commercial aerospace, quantum technology, and controlled nuclear fusion, are poised for accelerated growth in the AI era and warrant close attention. The other end comprises heavy-asset industries resistant to AI displacement, like power equipment, non-ferrous metals, and railway logistics infrastructure. These sectors are not replaceable by AI and may see increased utilization, for instance, the construction of large data centers driving substantial copper demand. The US, traditionally requiring 70,000 tons of copper annually, stockpiled 400,000 tons last year, indicating clear resource competition in the AI era. Allocating to resource stocks helps avoid market obsolescence. In contrast, many traditional sectors, humorously termed "old guard" stocks, continue to show lackluster performance, facing operational difficulties, slowing profit growth, or significant losses. This new barbell strategy is a distinctive approach worth emphasizing for navigating this year's divergent market conditions.