Since the Chief Perspective proposed "active waiting" on November 19, the market has been in a relatively stagnant state. Subsequently, we have discussed the five major cycles for 2026, including liquidity and the Kondratieff cycle, as well as strategy implementation. In the previous issue, we proposed an asset allocation strategy for 2026 anchored in profitability, focusing on midstream industries and tool adaptation. Its effectiveness is rooted in the triple resonance of "declining risk premiums, rising profitability, and structural differentiation." This aligns with our core framework of "cycle resonance as the anchor, strategic focus on new growth drivers, and tactical balance between offense and defense," anchoring profit certainty amid uncertainty and capturing the scarce value of midstream industries amid structural differentiation.
In implementing the above strategy, some basic technical details remain unaddressed. These details play a decisive role in determining the return and risk boundaries of single assets and identifying the cost-effectiveness of different assets such as stocks, bonds, and gold—primarily referring to the baseline for asset allocation. From a macro-strategy perspective, these baselines consist of return and risk benchmarks. The return benchmark mainly refers to economic growth among fundamental factors, with GDP growth and corporate profit margins being the most basic analytical elements.
The risk benchmark primarily refers to inflation factors, with CPI and PPI as the main indicators. Additionally, the risk-free rate serves as a benchmark for asset allocation, which can be incorporated into liquidity factors. Investors also focus on the price and quantity of funds, with the price including the Loan Prime Rate (LPR) and the RMB exchange rate. In terms of quantity, the focus has shifted from "M2 determining survival" to household deposit migration. Within the framework of major asset allocation, there is also a risk premium factor largely determined by policy preferences, which is difficult to quantify and will not be discussed in this Chief Perspective. We will quantify the above factors to enhance the operability of investment decisions.
1. Growth Factor - **GDP Growth Rate**: China's real GDP growth is projected at 4.9% in 2026, with nominal GDP growth at 5.2%, showing a "stable real growth, rising nominal growth" trend. The core logic is the global shift toward development priorities under the new world order, supported by domestic proactive fiscal and accommodative monetary policies to bolster infrastructure and cultivate new productive forces. Overseas restocking provides structural support for exports like the "new three" categories, while price improvements alleviate deflationary pressures, and the real estate adjustment slows. - **Corporate Profitability**: Focused on structural differentiation, policy logic, and industrial cycles, corporate profitability is projected as follows: Over the past 10 quarters, industrial enterprise profit margins and listed companies' ROE have shown "weak recovery + strong divergence." The former fluctuates around 5% due to low PPI and intense competition, while the latter maintains 8%-9% but with significant divergence between large/small caps and upstream/downstream sectors. In 2026, both are expected to recover, driven by supply-side reforms and PPI turning positive in Q3, with industrial profit margins rebounding to 5.8%-6.0% and listed companies' ROE rising to 9.5%-10%.
2. Inflation Factor - CPI is expected to moderately recover to 0.5% in 2026, while PPI turns positive in Q3, with an annual average of -0.4%, reflecting "weak recovery in consumption and gradual improvement in production." - Carryover effects are key marginal variables. For CPI, low base effects from H2 2025 contribute 0.1-0.2 percentage points, but sluggish pig prices and weak income recovery limit new price momentum. PPI benefits from strong carryover support and overseas restocking, though industrial overcapacity and weak consumption hinder full transmission to CPI.
3. Liquidity Factor - The 10-year government bond yield is expected to fluctuate at low levels, with LPR likely cut by 10bps (1-year to 2.9%, 5-year+ to 3.4%), marking the end of the net interest margin decline cycle. - The USD/CNY exchange rate is projected to range between 6.80-7.15, appreciating mildly in H1 due to Fed rate cuts and narrowing yield differentials, then stabilizing in H2. - Household deposit migration is estimated at 2-4 trillion yuan in 2026, with the deposit-to-AUM ratio falling to 1.5, driven by maturing long-term deposits and rising attractiveness of wealth management products.
4. Comprehensive Analysis and Allocation Recommendations - **Equities**: Enter a "profit-driven" golden period, favoring new productive forces (electronics, high-end equipment) and cyclical goods (benefiting from PPI recovery). - **Bonds**: Expect low volatility and narrow fluctuations, with LPR cuts benefiting high-grade credit bonds. - **Indirect Investment Tools**: Wealth management and funds benefit from deposit migration, serving as transitional options for stable capital. - **RMB Assets**: Increased attractiveness amid reduced exchange rate volatility, suggesting moderate allocation to RMB-denominated equities and bonds to diversify currency risk.
In summary, investors should follow the logic of "offense via profitability, defense via liquidity, and structure via differentiation," aligning with the core characteristics of economic transition and policy adaptation during this transitional period.
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