After an extended period of sideways consolidation, China's stock market is set to embark on a year-end rally. The December-February window is expected to see a convergence of favorable policies, liquidity conditions, and improving fundamentals, potentially driving major indices to new highs. Key sectors to watch include technology, brokerages, and consumer goods.
**Market Outlook: Stepping Up to New Heights** On November 24, when the Shanghai Composite Index dipped to 3,800 points amid pessimism, GTHT strategists identified this as a "critical entry point," expressing optimism toward technology, brokerages, and select consumer sectors. Recent market stabilization and the December 5 surge in brokerage and insurance stocks have reignited investor confidence. Looking ahead, we anticipate: 1) With the upcoming Economic Work Conference and the start of the 15th Five-Year Plan in 2026, more proactive fiscal policies are expected, including potential expansion of the broad deficit. 2) Weak property sales and potential Fed rate cuts in December, coupled with RMB appreciation, could create favorable conditions for monetary easing in early 2026. 3) Regulatory reforms, including the reduction of risk factors for insurance equity investments and expanded capital leverage limits, are boosting market risk appetite. The December-February period represents a prime window for policy-liquidity-fundamental alignment, suggesting significant upside potential.
**Declining Risk-Free Returns: 2026 Marks Shift to "Fixed Income+" Era** China's asset management landscape is undergoing transformation as traditional expectations of guaranteed returns fade: 1) 2026 will see a peak in maturing 3-year deposits with yields of just 1.5-1.7%, far below 2023 levels (3.5-4.0%), driving demand for diversified allocations. 2) Unlisted insurers adopting new accounting standards in 2026 could channel trillions into equities through OCI accounts, supported by relaxed risk factor regulations.
**Capital Markets Enter New Era as Economic Connector** China's capital markets now play a pivotal role in economic transformation: - Equity investments have become crucial for individual participation in knowledge-intensive industries, with market cap distribution showing manufacturing (27%) > TMT (21%) > finance (17%) > consumer (12%) > property (9%). - Reduced drag from traditional sectors, tech industry expansion, and global manufacturing outreach suggest 10.6% earnings growth for non-financial A-shares in 2026.
**Sector Recommendations:** 1) **Technology Growth**: AI advancements and computing infrastructure shortages favor internet/media/computing sectors and manufacturing exporters like power/industrial equipment. 2) **Financials**: Capital market reforms and early bank dividend payments make brokerages/insurance attractive. 3) **Cyclicals**: After three years of adjustment, undervalued consumer stocks (F&B, agriculture, hotels, tourism) and industrials (chemicals, non-ferrous metals) present opportunities.
**Theme Picks:** - Commercial aerospace (rocket manufacturing, satellite applications) - AI applications (internet platforms, data center infrastructure) - Robotics (key components, mass production supply chains) - Domestic consumption (sports events, winter tourism, retail recovery)
**Risks:** Potential overseas economic downturn and geopolitical uncertainties.
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