At the 2026 Financial Institution Annual Meeting held today, September 10th, Zhang Yidong, Executive Committee Member and Chief Economist of Haitong International, delivered a comprehensive analysis covering fundamental drivers, capital flows, and investment tactics amid the ongoing AI industrial wave.
He stated his current position with clarity, expressing a definitive bullish outlook. The encouraging news is that the underlying fundamentals continue to show a clear upward trend, while risk appetite lingers at depressed levels — a combination he views as constructive rather than concerning. Positioning for the period ahead, he suggests September offers a prime window for building positions at discounted valuations, with the potential for a market rebound arriving as soon as next week or, at the latest, following the anticipated US-China leadership talks at the end of September.
On the trajectory of AI industry fundamentals, Zhang highlighted that the sector is operating within an 8-10 year Juglar investment cycle. This current cycle bottomed in the first quarter of 2021 before starting its ascent. Following ChatGPT's debut in 2023, global growth has become increasingly AI-driven. Using an eight-year benchmark, the cycle could potentially peak in the first quarter of 2028. Caution is warranted as this coincides with the US presidential election cycle, making that period particularly sensitive. However, he noted that while infrastructure investment might reach its zenith around 2028, this doesn't signal the end of the trend — the pace will moderate, but the subsequent surge in applications and use cases will take over as the primary growth driver.
From a policy perspective, both China and the United States continue to intensify supportive measures for AI, with a growing emphasis on industrial applications. In broad terms, China's technology and advanced manufacturing sectors have now surpassed traditional industries and the financial/real estate complex to claim the largest share of market capitalization.
Turning to capital flows, Zhang predicts that overseas liquidity conditions will improve markedly in September. Domestic monetary easing measures are also likely to be stepped up in the fourth quarter, with the current landscape bearing strong resemblance to conditions preceding September 24, 2024. Long-end US Treasury yields may first climb before retreating during the third quarter. As these yields eventually decline, Chinese capital markets are positioned to benefit from synchronized inflows of both foreign and domestic capital.
Regarding investment strategy, he advises that September presents an excellent opportunity for bargain hunting. He holds a strongly positive view on the domestic AI supply chain, firmly believing that over the coming quarters, China's homegrown hard-tech sectors focused on filling capability gaps and achieving self-sufficiency will take center stage as the protagonists of this market cycle. Investors should look through the fog of pessimistic sentiment over the next two to three weeks to position themselves in quality Chinese assets.
Zhang elaborated on his strategic framework, emphasizing that the AI era is irreversible and represents an overwhelming trend. Efficiency gains across all sectors will vastly surpass those of the internet revolution, fundamentally reshaping the global economic structure. Historical patterns suggest we are in the midst of a Juglar cycle — following the internet 1.0 phase from 1993-2001 and the mobile internet 2.0 phase from 2010-2019, the current cycle now has AI as its core engine since 2023.
These cycles typically unfold in two stages: first, infrastructure build-out, and second, application expansion. While infrastructure investment may peak around 2028, the broad AI development will persist well beyond that milestone. The application explosion lies ahead — similar to how 1998-2000 witnessed the emergence of numerous internet application prototypes including e-commerce, online services, online gaming, and mobile payments, even though monetization models were still unclear. Capital markets during that period nevertheless assigned premium valuations to these nascent applications and novel business paradigms.
Critical to note is that the AI capex surge has become integral to sustaining US economic resilience, while in China, AI and new quality productive forces have emerged as vital new economic engines. Policy directions in both countries consistently point to new quality productive forces as the central pillar of development. Despite current market pessimism, the wave of technological innovation driven by AI is far from complete. For China, innovation-driven development policies remain firmly in place and will continue to strengthen over the medium term.
Investors should downplay short-term macro data fluctuations and instead focus on structural shifts and the ongoing transition between old and new growth drivers. The focus should be on China's technology sectors, particularly areas addressing domestic capability gaps. The convergence of capital market support and new quality productive forces — especially filling gaps, small giants, and AI-related high-tech hardware — represents fertile ground for investment, with the AI-linked domestic supply chain being particularly attractive.
In the current environment where markets have become overly pessimistic and long-end Treasury yields have risen due to concerns over US debt issuance competing with AI-related corporate bond supply, Zhang maintains that corrective measures will eventually be implemented. Under the most likely scenario, should the Fed opt to raise rates at the mid-September meeting, long-end yields could peak around 5% for the year before declining, as this would demonstrate the Fed's commitment to defending the credibility of long-term US debt. Alternatively, if the Fed holds rates steady, bearish positioning could force yields higher — potentially reaching 5.2-5.3% — triggering volatility reminiscent of the Silicon Valley Bank episode. Such a scenario would likely precipitate another round of passive quantitative easing by late September or around the National Day holiday, as crisis conditions would be untenable during an election year in the face of intensifying AI competition with China.
His forecast calls for the 10-year Treasury yield to test 5% before retreating to approximately 4.3% in the fourth quarter. History may not repeat exactly, but rhymes often echo. Prior to September 24, 2024, overseas easing provided the catalyst for Chinese capital markets to ignite. With long-end Treasury yields poised to peak and then fall, Chinese capital markets are well-positioned for a synchronized upward movement driven by both foreign and domestic liquidity.
September therefore represents an opportune moment for strategic allocation into quality Chinese assets. The investment framework encompasses two dimensions: pursuing both endogenous growth through advanced technology and new quality productive forces, and external expansion through mergers, acquisitions, and asset injections. Traditional sectors seeking earnings surprises should look toward restructuring and securitization rather than relying on broad-based stimulus. During 2021-2023, as foreign PE/VC firms retreated from China, local government-linked entities accumulated substantial high-quality tech equity positions at attractive valuations. These holdings now stand ready to be revitalized and monetized through the capital markets.
In summary, diminishing short-term macro data importance in favor of structural analysis is essential. History demonstrates that several of China's most significant bull markets emerged during periods of macroeconomic softness when the functional and political roles of capital markets came to the forefront. Over the next several weeks, investors should decisively accumulate quality positions across both technology and non-technology sectors — focusing on Chinese AI applications, semiconductor domestic supply chains, and internationally competitive advanced manufacturing exports, as well as restructuring and asset injection narratives tied to the comprehensive investment and financing reforms. The policy logic supporting capital market-driven debt resolution could extend well into the second half of 2027, presenting a compelling highlight for Chinese equities.
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