In 2026, China's macroeconomy is expected to achieve restorative growth, with policy support continuing to play a crucial role. The Central Economic Work Conference held at the end of last year emphasized "boosting domestic demand" as a key policy focus. By effectively stimulating investment and driving consumption, not only can economic growth be accelerated, but excess capacity can also be absorbed, preventing overcapacity in certain industries and price wars. These measures are anticipated to gradually improve economic indicators. It is projected that China's various economic metrics will show significant improvement in 2026, with price levels recovering moderately. The Consumer Price Index (CPI) is expected to achieve positive growth, while the decline in the Producer Price Index (PPI) will narrow, potentially even turning positive.
Currently, the three key drivers of economic growth—consumption, investment, and exports—are all facing varying degrees of slowdown pressure. Moving forward, policies will aim to stimulate consumption growth through measures such as trade-in programs, increasing state subsidies, and expanding subsidy coverage. Concurrently, the stock market has entered a phase of "slow and sustained bull market," which will effectively enhance the wealth effect for households, repair household balance sheets, and partially offset the wealth shrinkage caused by declining property prices in recent years. This, in turn, will strengthen households' consumption capacity and confidence. Therefore, this slow and sustained bull market plays a critical role in boosting consumption. On the other hand, efforts to stabilize investment growth will involve accelerating infrastructure construction. Last year, fixed-asset investment growth turned negative due to a slowdown in real estate investment. This year, by speeding up infrastructure development, fixed-asset investment growth is expected to receive a boost.
Overall, the economic recovery anticipated in 2026 will drive improvements across many industries, including a potential rebound in consumption growth. As the traditional peak consumption season around the Spring Festival approaches, the consumer sector—including baijiu, food and beverages, and new consumption areas—may experience a revival. In terms of fixed-asset investment, infrastructure projects, encompassing both traditional infrastructure and new infrastructure—particularly big data centers and charging piles—are set to be launched, which could boost the performance of related sectors. In the realm of technological innovation, the ongoing fourth technological revolution, coupled with the "AI+" initiative, is expected to enhance efficiency across numerous industries. Humanoid robots are regarded as one of the most promising applications of "AI+consumption." While currently primarily used in industrial settings, humanoid robots are expected to gradually expand into commercial service applications and eventually household use. The robotics industry is poised to benefit from policy support and economic recovery in 2026. Furthermore, sectors that performed strongly over the past year—such as computing power, algorithms, chips and semiconductors, solid-state batteries, and quantum technology—may witness new technological breakthroughs in 2026, leading to sustained performance in related segments.
The anticipated economic recovery in 2026 will provide crucial support for deepening the current capital market rally and serve as a fundamental factor for its sustainability. From the perspective of household savings reallocation, approximately 50 trillion yuan in time deposits are set to mature this year. These deposits previously enjoyed relatively high returns of around 3%, but following interest rate cuts, renewing them may yield only about 1%. Consequently, a portion of these funds is expected to flow into the capital market, seeking higher returns through investments in bonds, bond funds, stocks, or equity funds. This inflow is likely to become a key source of funding supporting the current market rally.
Reflecting on the market performance in January, overall momentum has been strong, with 2026 starting on a positive note and extending the cross-year rally. The Shanghai Composite Index has shown a consecutive upward trend, with trading volumes consistently expanding, at one point nearing the 4 trillion yuan mark, while the balance of margin trading surpassed 2.6 trillion yuan. This indicates that as the market rally deepens, investor confidence is strengthening, with growing belief in a bull market. Sector rotation accelerated in January; besides the continued strong performance of tech stocks, which stood out last year, sectors such as new energy, non-ferrous metals (including precious metals like gold and silver), and defense also delivered notable gains. Particularly, the non-ferrous metals sector performed well amid a surge in international gold prices. Additionally, as the Lunar New Year approached late in January, certain consumer sectors showed increased activity, contributing to strong overall market returns and effectively boosting investor confidence.
Currently, consumption growth remains low, with China's total retail sales of consumer goods growth dropping to 0.9% in December last year, a two-year low. However, as the slow and sustained bull market deepens and market returns improve, total retail sales growth is expected to recover moderately this year. Furthermore, the consumer sector may also rebound. After several years of adjustment, valuations of many consumer stocks have fallen to historically low levels. Due to significant underweighting by many institutional investors during the previous downturn, the consumer sector, having passed its most challenging period, may see a revival. It is anticipated to shift from "underweight" to "balanced" or "standard weight" allocations. For consumer stocks, especially branded consumer goods, consider appropriately increasing positions. Compared to highly valued tech stocks, many consumer stocks offer favorable risk-reward profiles and substantial allocation value, given their strong brand equity, high dividend yields, and stable earnings growth, making them suitable for investors seeking steady returns.
In 2026, technology stocks will remain a key investment theme, though not the sole one. In terms of rebound potential, sectors that performed strongly in the previous year—such as humanoid robots, chips and semiconductors, and computing power and algorithms—are likely to continue leading. These sectors are closely linked to artificial intelligence, and as AI applications become more widespread, they are beginning to secure orders and even deliver on earnings. Additionally, sectors like new energy, defense, and non-ferrous metals—referred to as "mid-cap stocks," positioned between tech stocks and traditional sectors—are expected to see sustained performance. Last year, tech stocks were humorously dubbed "small caps," while traditional sectors were called "old caps." "Mid-cap stocks," situated between these two, may benefit as market trends broaden and increased capital inflows lead to more diversified sector allocations. Finally, market momentum may eventually rotate to "old guard sectors," such as the previously mentioned consumer blue-chips and other industrial enterprises showing improved profitability.
The humanoid robotics industry is still in its early stages but has progressed from the 0 to 1 phase and is gradually entering the 1 to 10 phase. Mass production has begun this year, with some industrial robots already deployed in factories, and commercial service robots set to be gradually introduced. Although current robot intelligence and application scenarios remain limited, the industry is developing rapidly, and capital markets are positioning ahead of trends. If 2025 was the "concept炒作" phase, then 2026 will enter the "order炒作" phase, potentially followed by the "earnings炒作" phase in 2027. This means that this year, focus will be on which robotics component companies can secure partnerships with major manufacturers and large orders; those without orders, relying purely on speculation, may decline. Thus, 2026 is a phase where order books will be validated. Tesla is undoubtedly a leader in this field and a key supply chain anchor, likely influencing the performance of companies in its robotics supply chain. Simultaneously, many major domestic manufacturers are entering the humanoid robotics sector, which will also generate substantial orders. Similar to the new energy vehicle industry, while Tesla is a global leader, several domestic companies of comparable scale have emerged. The humanoid robotics sector may replicate China's development experience in new energy vehicles, potentially giving rise to world-leading enterprises. Moreover, as most mechanical component companies have transitioned from China's existing machinery parts sector, they already possess strong production and supply chain experience, positioning them naturally to become leaders in the humanoid robotics field.
Chips and semiconductors represent a critical "bottleneck" technology area that China is prioritizing, especially in high-end chips. Policy support continues to intensify, with further increases in R&D investment expected. The chip and semiconductor industry chain is long, with numerous specialized segments—such as lithography machines, packaging and testing, and wafer manufacturing—being highly crucial. Each segment involves significant technical expertise and presents substantial barriers to entry. However, breakthroughs in key areas can lead to major market share gains, substantial revenue and profits, and the establishment of high technological barriers, enabling companies to become industry leaders.
Computing power and algorithms form the foundation for artificial intelligence applications, including related infrastructure like big data centers and large model training. These are areas with high demand and are essential for future AI development, expected to remain a key focus for capital in 2026.
The new energy sector was among the top performers from 2019 to 2021. During this period, Forethought Quantitative Capital Management heavily allocated to the sector, with fund sizes peaking at over 40 billion yuan—this figure referring solely to funds focused on new energy. In 2021, two funds investing in the new energy track also ranked first in their categories among equity and mixed funds. However, after 2021, the new energy industry faced overcapacity and price wars, leading to intensified competition, sharply declining profits, and even losses for many companies—particularly in the severely oversupplied photovoltaic sector, where losses were significant. Starting in July last year, state-led efforts to "counter internal competition and reduce capacity" have improved the industry's competitive landscape. It is hoped that these measures will help some leading companies in oversupplied segments return to profitability in 2026, offering new development opportunities for the sector. The transition from traditional to new energy is an irreversible trend, and vigorously developing new energy is a key national policy for China. With technological advancements, solid-state batteries are expected to gradually replace traditional lithium batteries as the mainstream technology, although commercialization remains some distance away. Breakthroughs in solid-state battery technology are likely a matter of time, potentially revitalizing the new energy sector and ushering in a new phase of development—perhaps termed New Energy 2.0. Key segments to watch include lithium batteries, solid-state batteries, grid equipment, power equipment, photovoltaics, and wind power. Some of these may achieve new growth through technological breakthroughs, while others may return to profitability after capacity rationalization. As fundamentals improve, capital markets are likely to respond, reflected in stock price performance and the emergence of new investment opportunities.
Future competition between nations can largely be attributed to two key factors: power (electricity) and computing power, with the latter also dependent on the former. China holds a significant advantage in power generation, with total electricity output three times that of the United States. Future major power projects, such as hydropower development on the Yarlung Tsangpo River, will further enhance China's competitive edge in electricity supply. This strengthens China's position in the global AI competition, increasing its chances of success.
Recently, international gold prices have surged with high volatility, raising investor awareness of allocating to precious metals like gold and silver. Against the backdrop of "de-dollarization," demand for gold and other precious metals is increasing, with many central banks selling U.S. Treasuries and boosting gold reserves. The long-term upward trend for gold remains intact. However, the rapid recent price increase has accumulated substantial profits, raising the risk of a pullback from highs. Investors should exercise caution, avoid chasing rallies, and guard against short-term losses. From an asset allocation perspective, if a correction occurs, appropriately allocating a portion of the portfolio to gold, silver, and other precious metals can hedge against U.S. dollar depreciation risks, enhancing the stability and security of long-term investment returns. Therefore, allocation to precious metals like gold and silver should be viewed as a long-term strategic asset allocation rather than a short-term trading decision based on price fluctuations.
The biomedical sector is currently experiencing significant divergence. Categories like generic drugs and original drugs have been impacted by centralized procurement policies, leading to substantial declines in corporate profits and potentially subdued stock prices. In contrast, innovative drugs enjoy 20-year patent protection, and some have potential for international expansion ("going global"), which contributed to their strong performance in the first half of 2025. However, subsequent failure to deliver on earnings expectations and high valuations led to a prolonged adjustment. In 2026, truly innovative companies with the potential to become R&D bases for international pharmaceutical giants may stand out as stronger performers within the sector, while ordinary generic drug manufacturers may continue to underperform.
(Author: Yang Delong, Chief Economist and Fund Manager at Forethought Quantitative Capital Management)
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