As we stand at the turn of the year, the Chinese stock market is poised to take a critical step forward, surpassing and firmly establishing itself above significant thresholds. Looking ahead to 2026, China's "Transition Bull" market is expected to reach new heights. Emerging technology remains the primary theme, while cyclical and consumer sectors depend on their transformation; we maintain a positive outlook on the large financial sector.
The Chinese stock market is set to cross and stabilize at key levels, with the upward trend of the "Transition Bull" seeing new peaks. The Shanghai Composite Index's breach of the 4000-point mark on October 28th, reaching a 10-year high, also validates Guotai Haitong's crucial strategic call for 2025. While consensus turned pessimistic in recent months, Guotai Haitong dared to judge the "first move in the game" at a critical juncture, anticipating the cross-year rally to commence in December. With the Chinese market now in a sustained rebound and indices approaching 4000 points again, we believe that after a prolonged period of volatility and consolidation, the market is ready to surpass and stabilize at these important thresholds. Regarding investment direction, our outlook at the end of 2024 for 2025 positioned emerging technology as the main theme and cyclical finance as a dark horse. Now, looking from the end of 2025 towards 2026, emerging technology remains the core theme, cyclical and consumer sectors hinge on transformation, and we continue to be bullish on large financials. This article briefly discusses our interpretation of the Chinese market since 2025, the major directional judgments, and their underlying drivers.
China's capital market has begun to consolidate social confidence and social capital, entering a period of major development. The significant shift in macro policy in September 2024 marked the setting aside of "internal worries"; since April 2025, China has handled trade frictions with greater ease, resolving "external threats," which implicitly reflects enhanced national strength and governance capabilities. Unlike the contraction cycle from 2019-2024, since 2025, Chinese society has exhibited greater external confidence and internal stability, with the asset contraction phase concluding. Stock prices reflect future expectations and also embody rising social confidence. During the urbanization development phase, the expression of social confidence and individual participation in productivity enhancement primarily occurred through fixed asset investment. Now, with traditional business expectations waning, knowledge, technology, and capital-intensive industries are driving new growth. How does social capital, especially traditional capital, participate in economic transformation, technological progress, or asset allocation? Previously reliant on extensive traditional investment, the capital market now plays a crucial role, thereby equipping it with the capacity to consolidate social capital—an unprecedented change.
The implicit guarantee, or "rigid payment," in Chinese society has been broken, leading to a systemic decline in risk-free returns, and the influx of incremental funds into the market is far from over. Historically, numerous assets in China carried an implicit guarantee, acting as risk-free assets, such as trust products, bank wealth management products, and non-standard assets. The existence of these guarantees hindered the decline of risk-free interest rates and was a factor contributing to the short bull and long bear markets in A-shares. In the second half of 2024, China's long-term interest rates fell below 2%, and in 2025, yields on fixed-income products saw a comprehensive decline. Coupled with the exit of non-standard assets based on real estate and debt, high-yield, risk-free assets have substantially diminished. 2026 will witness a peak in maturing time deposits, and the central government is mandating the entry of long-term funds into the market. Undoubtedly, China is entering a period of explosive growth in asset management demand, and the influx of new capital is far from concluded.
Furthermore, reforms are altering social perceptions. Capital market reforms have boosted the investability of Chinese assets and enhanced the market's resilience to risks, shifting the stock market from a volatile, fluctuating state to a stable and improving one. Previously, various sectors of society held reservations about the stock market, such as concerns over low investability and excessive volatility, which dampened the willingness of social capital to enter the capital market. Since the "New National Nine Articles," fundamental institutional reforms—including new delisting rules, reduced shareholding rules, insider trading regulation, financial fraud supervision, and information disclosure regulation—alongside institutional arrangements encouraging dividends, share buybacks, and M&A restructuring, have significantly improved the investability of Chinese assets. Additionally, the establishment and operation of "market stabilization mechanisms" have effectively reduced volatility in the Chinese market, encouraging social capital to confidently increase its holdings.
Most critically, the transformation of China's industrial structure is reducing uncertainty in economic and social development, simultaneously outlining investment clues. After years of decline, traditional industries are transitioning from the vertical leg of an "L-shaped" recovery to a horizontal stabilization, with their marginal drag diminishing. New technology industries are entering a cycle of innovation and expansion. Chinese manufacturing is expanding globally based on its competitive advantages. The uncertainty surrounding economic and social development is decreasing, though this is not easily perceived. Therefore, a hallmark of the "Transition Bull" is the interplay between economic structural transformation and capital market reforms. It is time to shed the bear market mentality; maintaining confidence and patience is key, as the Chinese stock market still has new highs to reach.
Risk提示: Overseas economic recession exceeding expectations; uncertainty in global geopolitics.
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