On December 19, at the "Alpha Summit" jointly hosted by Wall Street News and CEIBS, Zhang Yu, Deputy Director of the Research Institute at Huachuang Securities, delivered a speech titled "Farewell to 'Extraordinary,' Spring Water Flows to 'Midstream'—Macro Outlook for 2026." She proposed that 2026 could become the inaugural year for the "awakening" of allocation value in the Chinese stock market.
Zhang Yu stated that if 2022 is considered the starting point of China's "post-real estate era," then 2025 marks a critical "transition phase" in U.S.-China competition. Societal risk appetite has bottomed out and begun to recover, with household deposits accelerating their "relocation" and financial asset activation becoming a key feature. By 2026, China's capital markets are expected to break the stereotype of "frequent fast bulls but rare slow bulls," entering a phase of low volatility and high Sharpe ratios for asset allocation.
Zhang Yu believes the Chinese economy is emerging from its low point and entering a recovery phase, with exports remaining a crucial pillar for macroeconomic performance in 2026. Despite overall external demand pressures, China's manufacturing competitiveness remains robust, particularly in midstream sectors like electromechanical products, which show resilience. Some industries have even gained global market share amid supply chain restructuring, providing a floor for economic stability. Next year, CPI trends are highly likely to turn positive, reflecting domestic demand recovery, while PPI's upward trajectory is clear—though its year-on-year shift into positive territory will require validation in Q2.
At the macro-policy level, Zhang Yu noted that policies will gradually move away from "extraordinary" measures. Counter-cyclical and cross-cyclical adjustments will persist, but the focus will shift from "strong stimulus and hedging" to stabilizing expectations and underpinning operations. Under debt and growth-quality constraints, policies will prioritize sustainability over large-scale stimulus.
For asset allocation, Zhang Yu argued that 2026 is unlikely to see a "dual bull market" for stocks and bonds, with the key lying in asymmetric volatility between the two. Stocks' relative allocation value remains underpriced: allocation-focused funds can target low-valuation, high-dividend sectors, while tactical funds may focus on industries with mid-term price improvements, high capacity utilization, and constrained capital expenditures. Zhang emphasized that while household deposit "relocation" will continue, risk appetite won't rise unilaterally, keeping stock market turnover elevated but unlikely to surge dramatically.
Midstream manufacturing emerges as 2026's most certain growth direction. Supported by export competitiveness gains, anti-overcapacity policies, and global tech competition, midstream sectors are achieving independent profitability momentum. A-share midstream ROE is poised to stabilize and rebound, with PPI year-on-year already bottoming and sequential improvements expected in coming months—potentially marking an inflection point for earnings and pricing power.
Key Insights from the Speech: - China's 2025 capital markets, especially equities, exhibited unusually low volatility and sharply improved Sharpe ratios. Sustaining this could make 2026 the true awakening year for allocation value consciousness, breaking entrenched biases. - The spread between corporate and household deposit growth rates leads China's PPI by 9–12 months, serving as a critical cyclical indicator. Its recent rebound confirms the worst is over, though absolute levels remain subdued, awaiting PPI stabilization. - Economic recovery hinges on reduced precautionary savings—whether funds flow to consumption or investments, any activation beats hoarding. Deposit mobility ratios must keep rising to sustain the cycle. - Two 2025 tailwinds will fade: M2 growth peaking and record deposit mobilization speeds unlikely to repeat, capping market liquidity expansion. - Policy has effectively guarded economic floors. While flexible adjustments will continue, the era of extraordinary stimulus is objectively over. - Exports offer 2026's most certain growth, likely stabilizing above 4.5–5.0%, driving pricing power. - Midstream manufacturing's edge stems from maximal export exposure and anti-overcapacity policy benefits, now moving from rhetoric to concrete actions (capacity management, competition order optimization, etc.). ROE has inflected, with PPI declines halting in H1 and sequential price rises possible by H2. - Mortgage rates below rental yields (positive cash flow coverage) historically signal 85% of housing price bottoms globally. China's current 80bp gap (2.2% yield vs. 3% mortgage rate) underscores urgent rate-cut needs. - Strategically bullish on stocks due to superior risk-adjusted returns, though 2026 may see slower valuation expansion and moderated ChiNext outperformance. Trading volumes may plateau or dip slightly post-2025's surge. - Bonds face rebalancing after a 3-year bull run, with yields needing to exceed 2% before marginal economic impacts matter. Current sub-2% pricing implies unrealistic zero-rate/QE expectations.
Uncertainties: - U.S. stock trends tied to AI/tech leaders like Nvidia defy traditional macro analysis. - Infrastructure investment timing, as traditional provincial drivers weaken. - Household consumption rate targets in March's development plan could reshape policy traction. - Property market hinges on policy timing, with true investable opportunities awaiting mortgage-rent yield parity.
Zhang concluded by stressing midstream manufacturing's structural advantages and cautioning against extrapolating past bond market gains amid shifting volatility regimes.
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