A-share listed companies are transitioning from localized firms with domestic exposure to multinational corporations with global exposure. China's capital market is evolving from an emerging market to a mature one, making A-shares not just China's but also the world's. During the "15th Five-Year Plan" period, Chinese enterprises are expected to further elevate their position in the global value chain, transforming market share advantages into pricing power—a foundation for A-shares to enter a low-volatility, slow-bull market.
Looking ahead to 2026, A-shares' fundamentals should be assessed based on global market demand rather than domestic demand alone. Under this framework, the U.S.-China dynamic will dictate market rhythm and smoothness. Two key events—the signing of a U.S.-China trade agreement and the U.S. midterm elections—may divide 2026 into three phases. The period between the trade agreement and the midterms is expected to be the most stable, offering a golden window for equity market gains.
From a liquidity perspective, the influx of absolute-return funds seeking steady returns will likely be a core feature of future capital market inflows, contributing to a long-term decline in A-share index volatility. While thematic ETFs may amplify sector-specific fluctuations, the broader market trend remains unaffected.
Three key investment themes stand out: 1. **Resource/Traditional Manufacturing Upgrades**: Transforming market share into pricing power and rising profit margins. 2. **Chinese Companies Going Global**: Expanding profit growth potential and market capitalization ceilings. 3. **AI Commercialization**: Broadening applications to sustain tech sector momentum and enhance China's competitive edge.
### Fundamental Paradigm Shift: A Global Perspective on A-Shares 1. **Rising Overseas Exposure**: A-share companies' overseas revenue share has surged from 7% in 2006 to 45% today, decoupling performance from domestic cycles. 2. **U.S.-China Dynamics Dictate Market Phases**: - Phase 1 (Pre-trade deal): Heightened but manageable friction, slower gains. - Phase 2 (Post-deal to midterms): Stable environment, sustained rally. - Phase 3 (Post-midterms): Rising uncertainty, refocus on domestic drivers.
### Liquidity Trends: Lower Volatility Ahead 1. **Absolute-Return Funds Dominate**: Insurance, private funds, and wealth management products drive inflows, prioritizing stability over high returns. 2. **Thematic ETFs Outperform Broad Indices**: Sector-specific ETFs attract more capital, amplifying niche volatility while broad indices stabilize. 3. **Retail Investor Behavior Diversifies**: Social media democratizes information, reducing herd mentality and extreme market swings.
### Sector Allocation Highlights 1. **Manufacturing Pricing Power**: Focus on sectors like chemicals, metals, and renewables where China holds supply advantages. 2. **Global Expansion**: Machinery, EVs, and biotech firms with untapped overseas potential. 3. **AI’s Next Catalyst**: Semiconductors, computing power, and hardware await a breakthrough akin to 2025’s "Google token surge." 4. **Consumer Recovery Awaits Policy Spark**: Domestic demand remains weak but may rebound with mid-2026 stimulus.
### Four Portfolios for 2026 - **Manufacturing Upgrade 30**: Large-cap leaders in chemicals, metals, and machinery (avg.市值 ¥67.8B). - **Global Expansion 30**: Export champions in autos, machinery, and healthcare (avg.市值 ¥152.5B). - **China AI 35**: Semiconductor, hardware, and application leaders (avg.市值 ¥494B). - **New Consumer 15**: Branded, export-ready service providers (avg.市值 ¥266.3B).
### Risks Escalating U.S.-China tensions, policy missteps, liquidity tightening, geopolitical conflicts, or prolonged property market stagnation could disrupt forecasts.
(Note: All data as of November 3, 2025.)