At a recent online media roundtable hosted by JPMorgan Chase, Liu Mingdi, Head of China and Hong Kong Equity Strategy Research, shared insights on the outlook for 2026. She projected target levels of 100 points for the MSCI China Index, 5,200 points for the CSI 300 Index, and 16,000 points for the MSCI Hong Kong Index, implying potential double-digit upside from current levels.

Liu identified four major investment themes for 2026: 1. **"Anti-Involution"** (countering excessive competition) 2. **Global AI Infrastructure Spending Growth** 3. **Boost to Exports from Developed Markets’ Policy Easing** 4. **"K-Shaped" Consumption Recovery**, benefiting food & beverages and ultra-luxury segments.

She noted that while semiconductor valuations appear stretched in the near term, sectors like solar energy and batteries offer more attractive opportunities. The consumer sector, currently undervalued, presents a compelling case for investors to avoid excessive underweighting.

**2026 Outlook: "4+1" Investment Themes** Reflecting on 2025, Liu’s team turned bullish on MSCI China and CSI 300 in January, later extending their optimism into 2026 by June. By mid-October, they recommended shifting partially from crowded growth and momentum plays to value, defensive, and high-dividend stocks—a trend expected to persist into early 2026.

JPMorgan’s quantitative macro model divides economic cycles into four phases—recovery ("spring"), expansion ("summer"), slowdown ("autumn"), and contraction ("winter"). While China’s economy and corporate earnings are broadly in the "summer" phase, periodic pullbacks remain likely. Despite slowing momentum in growth stocks since October, Liu anticipates a "spring rally" in 2026, reigniting demand for growth equities.

Targets for 2026 suggest ~22% upside for MSCI China, 13.5% for CSI 300, and 17.8% for MSCI Hong Kong. Key drivers include potential inflows from households and insurers, alongside foreign capital, though earnings growth remains the core pillar.

**Sector Preferences: Semiconductors Overheated, Solar & Storage Favored** On AI-related valuations, Liu cautioned that bubbles often stem from unrealistic profit expectations. She cited the semiconductor hardware sector’s October peak at 4 standard deviations above historical averages—a statistically extreme signal of overheating. Though moderated to ~3.5 deviations, valuations remain elevated.

"Four standard deviations imply a 0.006% probability—a clear warning," she said. While tech and healthcare face high earnings expectations, financials remain undervalued. Long-term semiconductor prospects hinge on import substitution and quality improvements.

Globally, AI capex growth benefits Chinese firms, with a maturing market emphasizing fundamentals over speculation. Liu favors solar, batteries, and related materials, where infrastructure like energy storage systems (ESS) is still in early recovery rather than high-growth phases.

**Exports & Consumer Sentiment** The "overseas expansion" theme enjoys broad consensus, supported by falling U.S. rates and domestic market diversification by exporters. Liu highlighted batteries, ESS, and solar supply chains as top picks for 2026, given their role in powering data centers.

Regarding "anti-involution," Liu outlined three categories: 1. **Growth sectors** (e.g., batteries, renewables) with strong income prospects; 2. **Cyclical industries** (e.g., steel, chemicals) tied to macro trends; 3. **Consumer-linked areas**, reliant on policy or corporate initiatives.

She expects the first group to outperform, driven by AI-driven power demand. Global electricity shortages, particularly in U.S. data centers, contrast with China’s ample supply but ongoing GPU development.

**Consumer Sector: Undervalued but Cautious Optimism** Liu attributed weak consumption to income and job security concerns rather than outright financial constraints. Households are prioritizing balance-sheet repair, with disposable income growth outpacing spending in most provinces.

Valuations for MSCI China Consumer Staples are the lowest among peers (India, U.S., Japan), with the highest dividend yield. At ~20x P/E versus India’s 50x, the sector offers relative value. Policy support post-Central Economic Work Conference could further bolster sentiment.

"Unlike consensus, we advise caution in overvalued sectors but discourage extreme underweighting in undervalued ones like consumer staples," Liu concluded.