Global economic resilience is being tested by Middle East conflicts. The core characteristics of the global macroeconomic landscape in the second half of 2026 are expected to be a coexistence of "supply shocks, policy constraints, and investment support." The persistence of oil price shocks is the primary variable determining the global macro path for the latter part of the year.
The U.S. economy is likely to continue its uneven and moderate growth within the year. The pace of the EU's weak economic recovery is being delayed. Japan's private sector demand may be disrupted by energy shortages. High oil prices are pushing up global inflation, with headline inflation rates in Europe and the U.S. potentially oscillating at high levels during the year, while Japan's apparent inflation rate may continue its moderate performance.
The Federal Reserve may not cut interest rates at all this year. Following its expected June rate hike, the European Central Bank may hold steady. The "unrestrained" fiscal stances in Japanese and European politics could become a source of market risk within the year.
For China, the focus of macro policy in the second half of the year is likely to shift more towards structural reforms. These reforms aim to optimize supply through "anti-involution" and "carbon assessment" measures, and to guide demand through fiscal and tax reforms.
It is expected that high export momentum will continue to be a significant driver of growth. On the domestic demand side, overall stability is anticipated, with the Producer Price Index running high while the Consumer Price Index remains moderate. Economic growth is forecasted to decline first and then rise, with the Renminbi expected to appreciate moderately.
Investment Outlook for Key Sectors
Technology Sector: AI Commercialization Accelerates, Market Performance to Diverge
At the current juncture, the AI industry is in its early stages, presenting more opportunities than challenges. At the industry level, new directions and paradigms such as video generation models, world models, and physical AI continue to emerge. Technological innovations in areas like video understanding and generation fusion, language and multimodal model fusion, and model continual learning will continue to drive model innovation trends.
Model iteration cycles are expected to shorten further. Companies like Anthropic are seeing sustained growth in Annual Recurring Revenue, with gradual expansion into more high-value enterprise scenarios such as finance, law, and healthcare.
On the market front, the primary challenges are the elevated valuations of global tech stocks and crowded positioning. Potential listings of companies like SpaceX, Anthropic, and OpenAI within the next six to twelve months could impact market liquidity, representing significant events and observation windows for global tech stocks. Considering that macro liquidity may tighten marginally in the second half of the year, market performance will rely more on the continuous delivery and verification of earnings.
However, as long as the positive industry trend remains, any valuation correction due to liquidity shocks presents more opportunity than risk. Meanwhile, the performance gap between domestic Chinese models and overseas models continues to narrow. Domestic cloud providers have more room for CAPEX increases compared to their overseas counterparts. As the ecosystem for "domestic models and domestic chips" continues to improve, domestic computing power will exhibit greater resilience.
Energy and Materials Sector: Focus on Supply-Demand Catalyzed Price Rises and High-Growth Advanced Materials
For commodities, geopolitical conflicts and supply disruptions remain the key investment theme. Geopolitical tensions are favorable for energy-related price increases in crude oil, coal, and battery metals. Central bank consensus on gold purchases is expected to support gold prices. Supply-side disruptions and rigid constraints are likely to keep industrial and strategic metal prices elevated.
Additionally, limited growth in chemical production capacity favors leading companies in fluorochemicals and chromium salts. Potash fertilizer is expected to see relatively strong prices due to robust demand.
In the materials field, themes like AI new materials, military new materials, solid-state batteries, nuclear fusion, and hydrogen energy are expected to be active. Investment opportunities are seen in high-growth industries and premium sectors within the new materials landscape, driven by policy, events, and earnings catalysts.
Manufacturing Sector: Acceleration in AI and Embodied Intelligence Chains, Dawn of Recovery for General Manufacturing and Overseas Expansion
Significant industrial progress is anticipated in both domestic and international AI computing power and embodied intelligence industries. This will drive high demand growth for upstream AI hardware, midstream supporting equipment, and downstream application manufacturing. A recovery in general manufacturing is beginning to show, with structural highlights in specialized equipment leading the way. China's globally competitive capacity for overseas expansion is expected to maintain its momentum.
Consumer Sector: Supply-Side Logic Prevails Short-Term, Long-Term Allocation Adheres to Structure
The broad policy direction in China to boost domestic demand is clear. Following several years of adjustment, the consumer sector's value for "rebalancing" has increased due to "low expectations and low valuations" combined with a "stabilizing trend underpinned by consumption resilience." The core feature of this consumption recovery is expected to be "supply-side clearance preceding demand-side recovery," resulting in a moderate, differentiated pattern reliant on individual stock alpha.
Short-term focus remains on supply-side logic, including the potential for leading companies to recover first due to inventory destocking and easing competition. Long-term allocation should adhere to structural trends across four major directions: new products/categories, new technologies, new channels, and new markets.
Healthcare Sector: Innovation Concentrated in Delivery, Internal and External Resonance Drives Qualitative Industry Change
In the first year of the "15th Five-Year Plan," the pharmaceutical industry has been designated a national emerging pillar industry for the first time. Driven by multiple reform policies and the concentrated delivery of innovation, domestic pharmaceutical industry performance began to recover and reverse in Q1 2026, particularly in emerging sectors like innovative drugs and medical devices.
Macro conditions remain supportive, with healthcare fund and pharmaceutical industry operations staying stable. Pharmaceutical reforms are entering an intensive period, with domestic policies increasingly tilting towards supporting innovation. Commercial insurance and long-term care insurance provide relatively certain incremental payment sources for the industry.
Financial Sector: Insurance and Securities to Benefit First, Absolute Returns in Banking Anticipated
In the era of low interest rates, household deposits are accelerating their shift towards insurance, wealth management products, and the stock market. The maturity of a large volume of medium- to long-term fixed deposits in 2026 is expected to drive trillions in growth for non-bank deposits. Stabilizing long-term interest rates improve fixed-income allocations, while the release of elasticity in tech stocks significantly boosts equity returns.
From an investment strategy perspective, financial stocks remain in a cycle of "economic recovery driving financial demand expansion." Insurance and securities are positioned to benefit first, while absolute returns in the banking sector are anticipated.
Investment Strategy for Major Markets
Mainland A-Shares: AI + Energy/Chemicals Form a New Barbell Structure
Looking ahead, three underlying frameworks are suggested for navigating market volatility: viewing China from a global perspective, replacing bull/bear thinking with a K-shaped mindset, and observing technology through the lens of shifting from "building AI" to "adapting to AI." The new barbell structure of AI plus Energy/Chemicals is the proposed allocation strategy.
Agentic AI driving demand and Middle East supply chain disruptions constraining supply are identified as the two most important areas generating unexpected supply-demand gaps and profit realization this year. From a longer-term perspective, while investment opportunities related to "building AI" are well-recognized, "adapting to AI" presents a challenge and an opportunity for a broader range of economic and market participants, and is expected to gradually become the main theme of the next stage.
Hong Kong Market: Reversal Anticipated, Focus on High-Growth Tech Themes and Dividend Diffusion
The new positioning of "constructive strategic stability" between China and the U.S. is expected to aid the repair of Hong Kong stock market investor sentiment. Subsequent property market stabilization driving consumption recovery and the formation of a "positive spiral" with equity market wealth effects will also fundamentally benefit Hong Kong stocks, which are highly sensitive to domestic demand.
Policy catalysts under the "15th Five-Year Plan" and the continued development of China's independent technology sector may also help reverse the trend of foreign capital outflows. An overall optimistic view is maintained for the second half, though liquidity disturbances from a potential peak in share lock-up expiries in Q3 are noted.
U.S. Market: Fundamental Logic Expected to Dominate Trading Themes
Strong U.S. employment data in May did not trigger a wage-inflation spiral. Combined with the Federal Reserve Chair's preference for trimmed mean inflation measures and continued weakness in the U.S. residential real estate market, the bar for the Fed to hike rates in the second half may be higher than current market expectations. Valuations for major U.S. broad market indices have retreated from their October 2025 highs, with the overall valuation center having shifted down noticeably.
Meanwhile, market expectations for U.S. corporate net profit growth by year-end have been continuously revised upward, suggesting U.S. equities still offer attractive value for allocation.
FICC Investment Strategy
For interest rate bonds, the yield on the 10-year government bond is expected to fluctuate within a range of 1.7% to 1.9% in the second half, potentially moving lower first and then higher. Opportunities may arise from shifts in liquidity conditions returning to neutral and discrepancies in inflation expectations.
Credit bonds present opportunities for yield discovery during the transition between old and new growth drivers. Traditional sectors like local government financing vehicles and real estate remain important, with yield-seeking becoming intense, requiring careful selection of issuers and bonds. Overseas bonds and innovative concept bonds are developing under policy support, offering first-mover advantages and sector dividends.
Convertible bonds are expected to remain volatile and risky overall. Index-based investing to capture smart beta is seen as an efficient approach. In an environment where the stock market continues its upward, albeit volatile, trend with positive sentiment, the implied volatility differential factor is worth monitoring. In individual bond selection, avoiding redemption risk is the top priority.
Additionally, allocation should tilt towards high-growth sectors and increase the proportion of bonds with low premium rates and those with more equity-like characteristics. Sector focus should be on technology, cyclical industries, and overseas expansion supply chains.
In the asset management market, with macro interest rates expected to remain low, the shift of deposits into other investment products is likely to be the core long-term growth driver for the fixed-income asset management industry over the next 5-10 years.
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