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At this mid-2026 juncture, many are discussing the "K-shaped divergence" in the economy. How do you view the macroeconomic landscape for the second half of the year?
Li Qiusuo: Looking ahead to the second half, the overall macroeconomic situation is expected to maintain a relatively stable trajectory. The positive aspect of the "K-shaped divergence" is primarily reflected in the continued robust prospects for exports and emerging industries. Regarding external demand, leveraging China's industrial chain advantages, exports are anticipated to remain resilient in the latter half of the year. In the realm of emerging industries, the AI industry trend is clear, with products undergoing rapid and continuous iteration. The strategic value demonstrated by applications across multiple fields is further increasing. Moreover, the widespread adoption of AI Agents this year has shown the potential for the AI industry chain to achieve a commercial closed loop and deliver substantial performance. In the future, this is expected to continue supporting economic performance. Simultaneously, under changing external conditions, the value of emerging sectors such as commercial aerospace and future industries is becoming more prominent.
At the same time, China's economy also faces some cyclical challenges. The foundation for sustained, stable, and improving economic performance still requires further consolidation, which represents the other side of the "K-shaped divergence." Currently, domestic demand performance is relatively subdued and awaits further improvement. Specific manifestations include: on the domestic front, the current price level recovery is mainly supported by imported inflation and the further advancement of supply-side "anti-involution" policies and capacity reduction. Future efforts still require fiscal policy to play a role with multiple measures, supporting a sustained and moderate price recovery from both supply and demand sides. Regarding the external environment, the global oil market may face a low-inventory structure. The potential for a significant decline in oil price levels in the second half is limited, which could impact global aggregate demand and the monetary policies of major countries. Expectations for global liquidity are undergoing adjustment.
At the market level, the first half of the year saw a structural market trend in A-shares dominated by technology. What changes are expected in the second half?
Li Qiusuo: In the near term, we believe overseas interest rate hike risks are easing. While the AI industry experiences some expectation volatility, it is expected to maintain high growth. Domestically, the relatively good interim report performance in July-August is anticipated to provide some support for the indices. From a medium-to-long-term perspective, we believe the resonance between the restructuring of the international order and China's industrial innovation trends is the core driving force propelling this market uptrend and the revaluation of Chinese assets. These two fundamental conditions remain unchanged, making the current market more conducive to long-term, steady progress compared to the past.
Overall market valuations are currently reasonable, but there are pockets of overvaluation. In the second half, it is necessary to guard against fragility and volatility risks in certain sectors. Furthermore, in the current environment where investor risk appetite is rising and expectations for the future market are generally positive, greater attention must be paid to the external environment and globally thriving industries, especially the AI trend. At the market level, focus should be on the impact of capital liquidity conditions. For the second half, overall market "stability" is preferable to "rapid gains."
Which specific sectors within the A-share market are worth watching in the second half?
Li Qiusuo: We believe that for A-share allocation strategy in the second half, a cautious approach to valuation and a focus on selecting quality is required, adhering to the benchmark of performance. There are still relatively abundant opportunities for high-growth sectors at the meso level in A-shares. Three main themes can be focused on:
The first is the need for "selective picking" within the AI industry chain. Following significant breakthroughs in commercialization, the sector's potential has expanded alongside upward revisions in fundamental expectations. Considering valuation and the degree of supply-demand tightness, priority should be given to infrastructure segments in the overseas supply chain, such as optical communications and electronic components. In some areas like computing power, where valuation increases have outpaced fundamental improvements, greater emphasis must be placed on matching performance expectations.
The second theme is energy bottlenecks and transformation. AI infrastructure and the re-industrialization efforts in some major countries will intensify the global trend of electricity shortages. Oil price fluctuations are also catalyzing the energy transition. Beneficiaries in the new energy sector primarily include energy storage batteries, power grid equipment, as well as upstream energy metals and battery materials. For traditional energy-related areas, focus on coal chemicals and electrolytic aluminum.
The third theme is cyclical reversals. Based on the position in the capacity cycle and recovering demand, it is advisable to pay attention to sectors where supply-demand issues are approaching an inflection point for improvement, such as engineering machinery, specific chemical products, optical and optoelectronic components, and some innovative pharmaceuticals. Additionally, the broader consumer sector may currently be near a bottom, awaiting signals of domestic demand improvement. High dividend yields might still represent a cyclical, structural characteristic.
How should investors approach asset allocation in the second half?
Li Qiusuo: The macro asset allocation team at CICC Strategy believes that macro liquidity could be the decisive factor for global asset performance. Looking ahead to the second half, liquidity may, to a larger extent, influence the upside potential and downside risks of global assets.
Regarding the stock market, overall valuations in the Chinese market are currently at reasonable levels. The AI industry theme is clear, and the positive cycle formed by foreign exchange-derived liquidity and the shift of household deposits continues to support market performance. In the near term, U.S. stock valuations are at historically elevated levels. Persistent stagflationary pressures continue to unsettle the market, increasing volatility risks for high-valuation assets, making their allocation appeal potentially lower than that of Chinese stocks. As inflationary pressures ease and U.S. dollar liquidity improves, this could provide new support for U.S. stocks.
In the bond market, yields on Chinese bonds are already at historical lows. While the risk of a significant rise in interest rates is limited, the potential for returns is also more constrained. For U.S. Treasuries, considering near-term stagflation challenges and potential easing trade opportunities in the second half, the risk-reward profile appears relatively balanced.
Regarding gold, inflationary pressures stemming from geopolitical shocks may manifest more as temporary spikes. As global inflation levels recede and concerns about interest rate hikes diminish, the downward pressure on gold is expected to weaken. From a medium-to-long-term perspective, the long-term decline in U.S. dollar credibility and the accelerating trend of restructuring in the international monetary system remain unchanged. The rationale for allocating to gold as a non-sovereign credit asset continues to become more prominent.
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