The current global market landscape is marked by widening disagreements among investors, particularly as elevated U.S. Treasury yields, a fluctuating dollar, and volatile U.S. equities weigh on sentiment. From a supply-demand perspective, the increasing reliance of American tech giants on debt financing and reduced global demand for U.S. Treasuries are key factors pushing long-end rates higher. Meanwhile, disappointing U.S. employment, consumption, and corporate earnings data, including from Walmart, combined with complex Middle East geopolitics, high oil prices, and the potential for a super El Ni帽o event, are raising the risk of stagflation overseas. In the short term, uncertainty persists across U.S. stocks, bonds, and the dollar, as well as broader international financial markets.
The recent increase in U.S. Treasury buybacks is unlikely to fundamentally resolve the underlying causes of high long-end rates given its current scale. Similarly, depreciation pressure on the yen has not fully eased, with growing expectations for a September rate hike by the Bank of Japan. Stabilization of U.S. financial conditions will require stronger coordination between monetary and fiscal policy, including signals from the Federal Reserve Chair at next week's Jackson Hole symposium. From a top-down perspective, maintaining an excessively aggressive risk posture is ill-advised, and portfolio construction should balance offense and defense while seeking steady progress. The preferred style leans toward allocating resources and selecting quality value opportunities.
Given unresolved Middle East geopolitical risks, the looming threat of a super El Ni帽o, rising stagflation concerns abroad, and persistent volatility in U.S. markets, the environment remains relatively favorable for resource-linked assets. Consider allocating to precious metals, energy, and agricultural products, while also selecting blue-chip value stocks with reasonable valuations, sound industry momentum, or stable earnings growth prospects. From a meso-level view, as the A-share interim reporting season enters its latter half, clearer earnings trends are emerging. Focus on sectors showing marginal improvements in performance momentum, limited prior price gains, and valuation percentiles below historical averages.
Based on the interim results disclosed so far (as of August 22, 2026), the energy, non-bank financial, steel, building materials, chemical, media, home appliance, and machinery sectors are showing the most significant quarter-over-quarter improvements in net profit growth. Considering year-to-date price performance and valuation percentiles, non-bank financials, chemical sub-sectors, pharmaceutical sub-sectors, IT software, and gaming represent assets with strong fundamentals but weak expectations, as their year-to-date returns are mostly negative. However, there is room for expectation improvement in some of these segments, potentially leading to recovery rallies supported by solid fundamentals. Sectors such as steel and light manufacturing also show marginal interim improvements. Additionally, based on macro-level indicator shifts since July, certain non-AI hardware sectors, such as the new energy and aquaculture chains, may see more pronounced improvements in the third quarter.
In conclusion, while short-term overseas risks remain, the A-share market demonstrates considerable resilience, with structural selection being the key. The preference is to allocate toward resource stocks, dividend-yielding and stable assets, as well as reasonably valued growth opportunities. Sectors to watch include non-ferrous metals (precious metals, copper), energy (coal, petrochemicals, new energy), agriculture and fisheries, banking, power, utilities, pharmaceuticals, IT software, gaming, brokerages, and essential consumer goods.
Risk warnings
1) Escalating overseas risk disruptions: Intensified global geopolitical conflicts, regional frictions, and trade disputes could heighten global risk aversion, triggering cross-border capital flows and volatility in risk assets. Uncertain monetary policy paths in major overseas economies and fluctuating rate expectations may pressure growth-sector valuations, creating periodic external disturbances for A-shares.
2) AI capital expenditure sustainability falling short: Global AI computing and data center investment heavily depends on the capital spending pace of overseas tech giants. If corporate profitability weakens or investment return cycles extend, AI capital expenditure growth could slow, undermining demand across upstream computing, hardware, and materials, potentially systematically affecting market risk appetite.
3) Domestic policy and economic recovery falling short: The domestic economy remains in a stabilization phase with weak internal momentum, as property sales and private investment recover slowly. A slower-than-expected recovery could further dampen market earnings expectations and risk appetite.
4) Incomplete interim earnings disclosures: The analysis of interim performance is based on a composite sample of companies that have disclosed their 2026 interim reports, performance forecasts, or preannouncements as of August 22, 2026. These statistical results may not fully represent the final actual performance of each sector.
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