As the A-share market officially closed for 2025, the Shanghai Composite Index settled at 3968.84 points, marking an annual gain of 18.41%. The ChiNext Index finished at 3203.17 points, soaring 49.57% over the year.
Looking back at 2025, the total market capitalization of A-shares surpassed 100 trillion yuan, with the Shanghai Composite Index briefly breaking through 4000 points to hit a decade-high. The market saw vigorous trading activity, where daily turnover exceeding one trillion yuan became the norm. The annual total turnover for the Shanghai and Shenzhen exchanges surpassed 400 trillion yuan, a surge of over 60% year-on-year, setting a new historical record.
The year was characterized by a "slow bull market" as the dominant theme for A-shares, spawning numerous highly profitable trends. Technology sectors like computing hardware, controlled nuclear fusion, humanoid robots, and commercial aerospace took turns leading the charge, while investment opportunities in innovative drugs and precious metals emerged intermittently, with dividend-yielding assets being highly sought after.
With 2026 now underway and A-shares at the starting line of the "15th Five-Year Plan," how will the market perform this year? Which investment areas warrant attention? Is there a hidden bubble in the AI sector? Addressing these investor concerns, Tencent Finance invited GTHT's Chief Strategist Fang Yi for his latest insights. Fang Yi was among the few strategists who accurately predicted the overall trend and investment opportunities in the Chinese market for 2025, and his view of a "transition bull market" has garnered significant market attention.
Fang Yi expressed optimism about the upcoming Spring rally in the A-share market for 2026, anticipating a strong "red start" for Chinese stocks. He stated that the beginning of the year is often a window where policy expectations, liquidity, and fundamentals align and improve synergistically. Historically, growth-oriented styles have typically been the key differentiator during Spring rallies, though differentiation between large and small market caps can also occur. He believes there will be ample investment opportunities during the Spring rally, with his focus for the year-end and Spring periods being on technology, non-bank financials, and consumer sectors.
Regarding the full-year trend for 2026 A-shares, Fang Yi believes the Chinese capital market is in a cycle of major development, asserting that the "transition bull market" is far from over. He expects to see the market reach greater heights in 2026, accompanied by larger-scale incremental capital inflows. He also suggests the Chinese market will not be confined to the previous structural bull market but is poised to enter a more comprehensive bull market, with the Shanghai Composite Index potentially challenging the highs seen in 2015. On investment opportunities for 2026, Fang Yi indicated that emerging technology remains the main theme, cyclical and consumer sectors should be viewed through the lens of transformation, and he maintains a positive outlook on large financial institutions.
Addressing the widely debated "AI bubble theory," Fang Yi expressed confidence in the AI industry trend and its investment potential. He noted that a short-term mismatch between investment and returns is common in the early stages of a technological breakthrough. Assessing whether a bubble exists should focus more on the potential scale of future business models. He believes investment opportunities within the AI industry chain will remain abundant in 2026. Besides continued attention to the North American supply chain, he is also optimistic about opportunities in domestic computing power as China's AI infrastructure accelerates its catch-up, as well as internet platform companies benefiting from the implementation of AI applications.
For retail investors navigating 2026, Fang Yi suggested that, amidst the current complex environment, two types of assets are crucial: first, assets with stability and monopolistic characteristics; second, transformative assets associated with new business opportunities. When investors adopt an "asset-finding" mindset and approach, whether seeking stable monopolies or transformative assets, they must be able to hold positions steadfastly and also have the courage to act decisively at critical moments. The key pitfall to avoid is exhaustively chasing hot trends and engaging in frequent buying high and selling low.
GTHT Chief Strategist Fang Yi stated that the "transition bull market" in Chinese stocks is far from over, and 2026 could see the emergence of a more comprehensive bull market.
Fang Yi: When looking ahead to 2025 at the end of 2024, I coined the term "transition bull market" for this cycle, a hallmark of which is the interplay between economic restructuring and capital market reforms. The GTHT strategy team was also among the few that remained firmly bullish during the market bottom in April 2025, projecting the Shanghai Composite could reach 4000 points within the year. We maintain strong confidence in the Chinese market.
Looking toward 2026, I believe the "transition bull market" in Chinese stocks is far from over, and we can anticipate the market reaching greater heights. Our view is one of "gazing far toward new peaks."
The Chinese capital market currently stands at a pivotal point in a major development cycle. Significant shifts are occurring in societal perceptions, though many have yet to fully grasp this, which partly explains why many found the market movements since 2025 difficult to interpret. The major turning point in September 2024, coupled with more timely and appropriate macroeconomic policies, signaled that investors could set aside their "internal worries." Throughout 2025, the Chinese government actively responded to and countered multiple rounds of Sino-US friction. While the complexity hasn't diminished, this indicates reduced societal apprehension regarding "external threats," underpinned by enhanced national strength and governance capabilities. China's growing external confidence, internal stability, stabilizing asset prices, and the capital market's increased capacity to build social consensus and attract social capital represent unprecedented changes, also implying that the Chinese market is in a cycle of valuation expansion.
Furthermore, whereas participation in economic productivity gains was historically channeled primarily through real estate or traditional fixed asset investment, knowledge-intensive and capital-intensive industries are now driving growth amid the transition. The capital market has become a crucial link connecting social capital with improvements in economic productivity. Understanding these changes helps explain why, following the breakdown of implicit guarantees ("rigid payments") and the disappearance of high-yield, risk-free assets in China, asset management demand is set to explode. 2025 was merely the beginning; 2026 will witness even larger-scale incremental capital entering the market.
Capital market reforms are also critical, as they alter how society perceives the market. Previously, widespread skepticism—regarding issues like low investability and high volatility—hindered the willingness of social capital to enter the capital market. Since the "New National Nine Articles," fundamental reforms encompassing new delisting rules, reduced shareholding rules, insider trading crackdowns, financial fraud supervision, and information disclosure regulations, alongside institutional arrangements encouraging dividends, share buybacks, and M&A, have not only boosted the investability of the Chinese market but also reduced volatility, creating conditions conducive for long-term capital to enter and remain invested.
Finally, the emergence of new technologies and business opportunities, coupled with the global expansion of Chinese manufacturing and a robust economic transformation, are reducing uncertainties in economic and social development while also illuminating investment directions.
The "transition bull market" in Chinese stocks is far from over. Our outlook for the Chinese market is more resolute and optimistic than the consensus. Additionally, we believe that in 2026, the Chinese market will not be limited to the previous structural bull market but is poised to enter a more comprehensive bull market, with the Shanghai Composite Index potentially challenging the 2015 highs.
Fang Yi stated that the overall valuation of A-shares is around historical average levels. Following the 2025 rally, static P/E valuations are not particularly low, but it's important to recognize that the Chinese economy and corporate earnings growth are in a state of bottoming out and recovery. We forecast that non-financial A-share earnings growth will accelerate to double digits, reaching 10.6% in 2026. Therefore, using earnings from the previous trough to judge valuations statically has significant limitations.
From a Price-to-Book (PB) perspective, the overall A-share market is currently around the 55th historical percentile, indicating an average level. Since 2019, the overall PB of Chinese A-shares has consistently remained below the 60th percentile, representing a cycle of valuation compression. Considering the capital market's newfound ability to build social consensus and attract capital, alongside declining risk-free returns, capital market reforms, and the momentum of economic restructuring, I believe there is potential to break upwards from the constraints observed since 2019.
Other metrics tell a similar story: China's market risk premium and the equity-bond yield spread are both around historical averages. Simultaneously, due to the effectiveness of market stabilization mechanisms, A-share volatility has decreased significantly, improving the Sharpe ratio for investing in A-shares.
Furthermore, in a横向比较 with other major global markets, the valuation levels of indices like the CSI 300 and CSI A500 are notably lower than those of the S&P 500, Nikkei 225, and KOSPI, among others.
From a sectoral perspective, valuations for pro-cyclical sectors like consumption and finance are currently at relatively low historical levels. While static valuations for some growth sectors like TMT and defense may appear high, when combined with their strong future earnings growth expectations, the valuation-earnings匹配度 remains reasonable, and investment opportunities are still worth attention.
Regarding investment opportunities, I advise against interpreting them simply through the lens of valuation, especially static valuation. For Chinese society today, the most critical task is "finding assets," be they stable monopolies or transformative assets. Our outlook for the future remains that emerging technology is the main theme, cyclical and consumer sectors depend on transformation, and we continue to favor large financial institutions.
Fang Yi expressed optimism about the Spring rally, believing Chinese stocks will have a strong start. He emphasized that the beginning of the year is a window for policy, liquidity, and fundamentals to improve together, noting the Spring rally effectively began in December 2025. He reiterated that the "transition bull market" is far from over, and 4000 points is not the endpoint for Chinese stocks, foreseeing a move to new heights.
Historically, during Spring rallies, growth styles often lead due to liquidity expansion and optimistic future expectations, though differentiation between large and small caps occurs. Historically, large-cap stocks, represented by the CSI 800, have frequently outperformed around the Lunar New Year period, a trend he believes will continue, as seen recently with the strong performance of the A500 and ChiNext 50 indices.
After the Lunar New Year, small-cap stocks and thematic strategies tend to show more significant outperformance. While historical patterns are informative, no two rallies are identical. He believes the Spring rally will offer plentiful opportunities, with his focus for the year-end/Spring period being on technology, non-bank financials, and consumption.
Fang Yi commented on the 2025 market discussion contrasting "old stalwart" and "new emerging" assets, which saw extreme performance divergence. He finds this analogy inaccurate. At the end of 2024, their investment view for 2025 was that emerging tech was the main theme, with cyclical and financial sectors as potential dark horses.
Looking back at 2025, besides the standout performance of TMT and other tech sectors, cyclical sectors like non-ferrous metals, basic chemicals, steel, and building materials saw gains exceeding 20%, and some bank stocks also performed very strongly.
Within manufacturing, sectors like power equipment, industrial machinery, and automobiles also rose over 20%, all outperforming the market average. He cautioned against being trapped by past paradigms, where "cyclical" automatically meant property and "consumption" meant baijiu, urging investors to recognize the ongoing changes.
Fang Yi believes the re-rating of the Chinese market will be broad-based, offering opportunities in both tech and non-tech sectors, but the key change is a shift from a barbell strategy to a quality strategy. During 2022-2024, the barbell strategy was prevalent, which he likened to walking in the dark without a light, where the primary concern is not stumbling, as the path ahead is unclear. Reflected in investing, due to broad-based growth and fundamental weakness, coupled with tail risks and external uncertainties, the market sought certainty, whether through dividends or short-term trading.
However, 2025 saw a shift in market style, where the previous barbell strategy seemed less effective. His investment direction outlined at the end of 2024—emerging tech as the main theme, cyclical/financial as dark horses—was largely validated. The fundamental reason is that "dawn is breaking in the East"; as growth emerges, investors can look further ahead. Especially with the continuous emergence of new technology trends and accelerating societal changes since 2025, focusing solely on certainty is insufficient; growth and capital appreciation have become important, though dividends remain relevant, potentially offering better returns in Hong Kong stocks.
His view on 2026 investment opportunities remains: emerging technology is the main theme, cyclical/consumer sectors depend on transformation, and he continues to favor financial stocks. He recommends sectors including tech growth and finance.
1) Tech Growth: Sino-US competition extends beyond trade to technology and productivity. Recommendations: Hong Kong internet/media/computer/communications/semiconductors. 2) Manufacturing Globalization: Chinese enterprises are joining the globalization wave, a key path for market expansion and shareholder returns. Recommendations: Power equipment/industrial machinery/auto parts/innovative drugs. 3) Cyclical/Consumer Transformation: After years of decline, cyclical/consumer stock prices are forming a bottom. For cyclicals, focus on anti-involution and new materials. Recommendations: Non-ferrous metals/chemicals/steel/building materials. Consumer opportunities lie in services and instant consumption, emphasizing equity value and personalization: Food/beverages/hotels/tourism services/new retail/duty-free. 4) Continued Favor for Financial Stocks: Benefiting from economic stabilization and surging asset management demand. Recommendations: Brokerages/insurance/banks.
Fang Yi believes that with the further decline in risk-free returns, the scale of incremental capital entering the market in 2026 is expected to be even larger, and signs of "deposit shifting" may become more apparent.
The breakdown of implicit guarantees and the decline in risk-free returns in China are significant because they will trigger an explosion in societal asset management demand, presenting a historical opportunity for the asset management industry. A common misconception is that the risk-free rate in China is the long-term government bond yield. In reality, numerous financial products with implicit guarantees existed, such as trusts, bank wealth management products, and non-standard assets. These guarantees severely hindered the decline of the risk-free rate and dampened willingness to allocate capital to the markets, contributing to the pattern of short bull and long bear markets in China.
2025 demonstrated a comprehensive reduction in high-yield, risk-free financial assets, the breaking of implicit guarantees, and even yields on fixed-income products falling rapidly from 3-4% in 2024 to below 2% in 2025. Interesting phenomena were observed in Japan (1998-2008) and the US (2011-2018): when long-term rates fell below 2% and remained range-bound for extended periods, bond capital gains diminished while coupon income became insufficient, leading to declining investor interest in pure fixed-income products and rising interest in stocks and diversified assets.
This illustrates how, following the decline in risk-free returns, the demand for "finding assets/yield" begins to rise. After China's long-term rates fell below 2% in the second half of 2024, a similar phenomenon emerged in 2025, which was one of his core views for the year. However, he believes 2025 was just the beginning. With the concentrated maturity of household 3-year certificates of deposit, central government requirements for large insurers to allocate 30% of new premium income to A-shares, and the implementation of new accounting standards in 2026 allowing non-listed insurers to purchase stocks via OCI accounts, 2026 is poised to be the pivotal year for a major shift of social capital from fixed income to equities.
Fang Yi commented on the heated debate about an "AI bubble," stating that from both industrial and capital market perspectives, they are optimistic about the AI industry trend and investment opportunities. In the initial phase of a technological explosion, a short-term mismatch between investment and returns is normal. Assessing a bubble should focus more on the potential scale of future business models. Currently, large model technology is still iterating rapidly, expanding its capabilities, and global token consumption is growing exponentially, indicating vast potential application scenarios and considerable revenue generation potential.
Moreover, the profitability of overseas tech giants remains robust, with no significant worsening of corporate debt pressures. Simultaneously, valuations for relevant companies in the domestic supply chain are within relatively reasonable ranges, showing no typical signs of bubble formation. Therefore, they believe investment opportunities within the AI industry chain will remain abundant in 2026. Besides continued focus on the North American supply chain, they are also optimistic about opportunities in domestic computing power as China's AI infrastructure accelerates its catch-up, and internet platform companies benefiting from AI application deployment.
Currently, the per capita and per enterprise computing power scale in the US is 16 times and 5 times that of China, respectively. The scale of GPU cluster power per capita and per enterprise in the US is 25 times and 8 times that of China, respectively. This gap remains substantial. Given that AI is a highly globalized industry with strong Matthew effects, China's development space is very large, making it a crucial arena in the Sino-US productivity competition.
For retail investors in 2026, Fang Yi's advice centers on the keyword "finding assets"—specifically, assets in China's future advantageous industries. Due to declining risk-free returns and economic restructuring, the pace of societal change is accelerating, increasingly challenging past business models, experiences, and perceptions.
He believes that in the current complex environment, two types of assets are important: first, assets with stability and monopolistic characteristics; second, transformative assets associated with new business opportunities. In the past, exposure to both types could be achieved through fixed asset investment, but this is becoming increasingly difficult, underscoring the importance of the capital market.
When investors adopt an "asset-finding" mindset, whether seeking stable monopolies or transformative assets, they must be able to hold positions steadfastly and also act decisively at critical moments. The key is to avoid exhaustively chasing hot trends, engaging in frequent buying high and selling low, and falling into the passive situation of frequent trading and blind following. Of course, index investing remains an important and convenient way for the general public to participate in the capital market.
Comments