**Market Trends: Riding the Bull Wave to New Heights** In 2025, China's stock market staged a "confidence revaluation bull run," with valuations recovering but not overheating as the market reassessed Chinese equities amid the tech G2 rivalry and globalization trends. After a downturn from 2022 to 2024, A-share earnings bottomed out in 2025, no longer falling below market expectations, with signs of stabilization and recovery. The proportion of high-growth sectors notably increased.
For 2026, optimism persists regarding China’s stock market trajectory, supported by sustained inflows of incremental micro-level capital. Three potential upside surprises warrant attention: corporate earnings exceeding expectations, accelerated progress in China’s AI sector, and expanded "pragmatic cooperation" between China and the U.S. However, risks such as U.S. reflation and the commercialization race in AI applications should be monitored. While a continued bull market is the consensus for 2026, navigating volatility and adapting to structural shifts will be key to outperformance.
**Growth and Cyclical Sectors Lead, Consumer Sector Awaits Catalyst** Growth and cyclical styles remain high-probability bets for 2026, driven by the AI industrial wave and recovering PPI trends, respectively. In AI, U.S. investments continue to surpass expectations, while domestic investment and substitution cycles are still in early stages. For cyclicals, policy support against "internal competition" and a manufacturing capacity cycle bottoming out have pushed PPI into recovery since August 2025. Under neutral assumptions, the PPI decline is expected to narrow further in 2026, potentially reaching -0.44% annually—historically a precursor to cyclical sector outperformance.
The consumer sector, though not pessimistic, awaits a catalyst. Historically, a one-year lag exists between industrial profit recovery and a rebound in consumer confidence. With industrial profits trending upward since 2025 and further improvements expected in domestic pricing and capacity cycles alongside U.S. economic recovery, consumer confidence may surprise positively in 2026.
**Sector-Specific Opportunities** Based on absolute and sequential revenue/profit growth, alongside bottom-up indicators, sectors are classified into six categories: *declining, bottoming, reversal, moderate growth, high growth, and mid-high volatility*. Three thematic opportunities stand out: 1. **AI**: Semiconductors, overseas computing power, non-ferrous metals, grid equipment, and edge AI. 2. **Cyclical Recovery**: Offshore wind, batteries, lithium equipment, solar, chemicals, and oil/coal. 3. **Globalization**: Construction machinery and innovative pharmaceuticals.
**Key Themes**: The 15th Five-Year Plan, SOE reforms, humanoid robotics, and solid-state batteries.
**Risk Warnings**: 1. *Data discrepancies*: Historical data may suffer from reporting lags or calculation biases. 2. *Global economic slowdown*: Stagflation abroad and domestic weakness could dampen demand. 3. *Escalating tariffs*: Further U.S. trade restrictions or financial sanctions (e.g., delisting Chinese ADRs) may disrupt exports, growth, and markets.
*This report reflects the views of East Money Securities’ strategy team as of November 17, 2025.*
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