Key insights from a market analysis point to A-shares entering the late stages of a bull run, with broad, high-level volatility anticipated for the second half of the year.
Market Cycle
The current A-share bull market, in terms of both duration and magnitude of gains, is approaching historical levels, indicating it is nearing its conclusion. The overall market for the latter half of the year is expected to be dominated by wide-ranging, high-level fluctuations.
Monetary and Interest Rate Environment
The monetary policy stance of major global central banks in the second half of the year is shifting towards the end of easing. The European Central Bank raised rates by 25 basis points starting in June, formally ending the rate-cutting cycle that began in 2025. Current inflation has spread from energy to food, industrial goods, and services, with the economy showing stagflation characteristics of rising inflation and slowing growth. One to two additional 25-basis-point hikes are expected within the year. The Bank of Japan is projected to raise rates by 25 basis points in June, with a total of 2-3 hikes anticipated for the 2026 fiscal year, potentially lifting the target interest rate range to 1.0%-1.25%. The US Federal Reserve is expected to keep rates on hold, with its policy direction dependent on a retreat in economic data such as inflation and employment.
Macroeconomic K-Shaped Divergence
The global economy is experiencing silicon-based inflation alongside carbon-based deflation. AI is not just a technological revolution but has escalated to a strategic level in US-China competition, with both sides seemingly committing all available resources. Under high interest rates, AI is absorbing the vast majority of resources, while consumer purchasing power is gradually weakening. However, the most significant event in the second half of the year is the US midterm elections, where former President Trump and the Republican party currently trail. Therefore, Trump's policy orientation is to secure a US-Iran peace agreement to suppress oil prices and inflation, preventing the Fed from being forced to hike rates. Concurrently, implementing tax cuts is a priority. The year-on-year growth rate of the US fiscal deficit remains in negative territory, providing some room for expanded fiscal expenditure.
Primary Market Theme
AI was the absolute core theme throughout the first half of the year but faces pressure in the second half due to overly concentrated trading, massive IPOs draining liquidity, and global high interest rates suppressing traditional industries. The capabilities of large AI models are still advancing significantly, and AI agents are in a high-growth phase. Furthermore, the US government has begun imposing export controls on the most advanced models, which will likely continue to force resources towards AI in China's pursuit of catching up in large models and computing power. Investments in other areas like consumption and infrastructure remain undervalued, but a reversal will require more time.
Profits and Valuations
A recovery in China's nominal GDP growth, expected to exceed 6% for the full year, should drive mild profit growth for the CSI 300 index, pushing the index to single-digit gains in the absence of valuation expansion. Industrial enterprise profits saw a significant rebound in the first half, with cumulative year-on-year growth of 18.2% from January to April. However, the growth rate of corporate inventories (10%) was notably higher than the growth rate of revenue (5.2%), indicating an unsteady foundation for growth. Sector profit divergence is pronounced, with computer & communications, non-ferrous metals, and chemicals leading the market, while home furnishings, automobiles, and baijiu (liquor) are at the bottom. This divergent pattern is unlikely to reverse in the short term. In terms of valuations, the risk premium for the SSE 50 is in a neutral zone, making valuation pressure manageable, but financial and consumer heavyweight stocks are dragging on its performance. Valuations for the CSI 300, CSI 500, and CSI 1000 indices are neutral to high. The ChiNext Index, with high growth, has moderate valuations, making it the most cost-effective among major broad-based indices. The STAR 50 Index is near historical highs, with high valuations corresponding to high growth, as the domestic computing power sector remains in a rapid development phase. The Hang Seng Tech Index valuation is at a historically low level but is weighed down by consumption and high corporate R&D investment, lacking clear signals of earnings improvement. US stock valuations (S&P 500 / Nasdaq) are at historical highs; with rate cut expectations weakening, valuations are supported solely by AI capital expenditure.
Core Risks
The global shift into a rate-hiking cycle poses a risk. If Fed policy turns more hawkish than expected, keeping rates high for longer, high-valuation tech stocks could face sustained valuation compression.
Equity supply risk: Massive IPOs from three leading US AI companies could divert global capital. Combined with the expiration of lock-up periods for individual stocks, this could easily create supply shocks. Concurrently, an acceleration in A-share IPOs could disrupt capital balance.
Fundamental risk: Persistently weak global consumption could negatively impact tech company revenue growth. Declining free cash flow among overseas tech giants is putting pressure on corporate earnings.
Review of Q2 2026 Major Assets and Sectors
The second quarter saw A-shares primarily in a consolidating phase. The market plunged following the outbreak of conflict in the Middle East in March. However, after April, influenced by oil prices, inflation, and domestic anti-war pressure, Trump's stance on the Middle East conflict became clear: the US would not engage in landing operations or escalate the conflict in other forms, opting instead for negotiation through blockade and pressure. From a macroeconomic perspective, the biggest change was the reversal of the global central bank rate-cutting narrative. The European Central Bank and Bank of Japan have begun raising rates, and with a new Fed Chair, market expectations have shifted from rate cuts to hikes. Significant resistance is evident above the previous highs of the Shanghai Composite Index, with the index mainly showing repeated fluctuations, increasing trading difficulty.
Since the second quarter, both the CSI 300 and CSI 1000 indices hit new highs before retreating significantly. Large and small-cap styles were relatively balanced, but sector styles were extremely uneven. Overall trading volume remained above the 3 trillion yuan level. The SSE 50 Index performed weakly, not only failing to reach new highs but falling back to March lows, primarily due to its heavy weighting in financial and consumer stocks. In contrast, the CSI 300 and CSI 1000 have information technology as their largest sector weight. Persistent redemptions in broad-based ETFs in May notably capped the index's upside. This trend of ETF outflows only subsided in June.
A-Share Sector Structure Characteristics
Sector structure in Q2 was exceptionally narrow, with extreme divergence between industry groups.
Only the semiconductor and hardware equipment sectors, driven by AI, significantly outperformed, with gains exceeding 40%, far ahead of all other sectors. Banking, telecommunications, and non-ferrous metals sectors were stable. Most other sectors experienced declines, with consumption, pharmaceuticals & biotechnology, and software in a sustained bear market. Oil & petrochemicals, after surging in Q1 due to Middle East tensions, retreated sharply upon de-escalation. The theme of silicon-based inflation and carbon-based deflation persisted.
Performance of Major Asset Classes
Regarding major assets, crude oil experienced significant volatility, surging in March due to Middle East tensions before retreating notably. The Nasdaq and S&P 500 led major asset classes by a wide margin. Gold continued to decline, mainly affected by the reversal in rate cut expectations. The Renminbi appreciated steadily. Copper gains were second only to US stocks, showing strong and volatile performance. Ferrous metals remained weak. Lithium carbonate entered a stable period after a violent rebound from lows in Q1. Real estate prices in first-tier cities began to stabilize. US Treasuries performed weakly under inflation pressure and rate hike expectations.
Following the impact of the Middle East conflict, the HALO trade (Heavy Asset, Light Alternative) resurfaced. Semiconductor manufacturing in Japan, South Korea, and Taiwan continued to lead. Speculative fervor in the South Korean stock market was extremely severe, frequently triggering trading halts. China's CSI 500 and CSI 1000 performed averagely. The Hang Seng Tech Index, primarily composed of large internet companies and new energy vehicles, continued its weak performance.
Total A-Share Market Cap to Nominal GDP Ratio
As of June, the total market capitalization of Shanghai and Shenzhen markets was approximately 129 trillion yuan, with a ratio to GDP of about 90%. This exceeds the 2021 level and is slightly below the nearly 100% ratio seen during the 2015 bull market, while the 2007 ratio reached 120%. The current ratio is at an elevated level but not severely overvalued. Although IPOs have increased, even accounting for large IPOs like ChangXin Memory and Yangtze Memory, the full-year total is expected to be around 150 billion yuan, significantly lower than levels seen in previous bull markets.
Historical Bull Market Gains and Maximum Drawdowns
Reviewing historical bull market gains and maximum drawdowns, the magnitude and duration of gains since the 2024 low up to June 2026 are comparable to previous bull markets. Only the gains of the SSE 50 are notably smaller than in past cycles. The leading STAR 50 Index saw a maximum gain close to 200%, the ChiNext Index nearly 180%, and the CSI 500 and CSI 1000 have also more than doubled. The duration is close to two years. From both temporal and spatial perspectives, the bull market may be nearing its end.
Macro Outlook for H2 2026: Extreme Reliance on AI
Monetary Policy Reversal
The base scenario for global monetary policy in the first quarter was a shift towards easing, with the Fed accelerating rate cuts. However, following the outbreak of Middle East conflict, persistently high crude oil prices pushed up global inflation, reversing rate cut expectations. In the second half of the year, the policy direction of the new Fed Chair, particularly, is crucial.
The Federal Reserve will usher in the Wash era on June 16-17. Market expectations are for rates to remain unchanged at this meeting. Given the US-Iran peace agreement announced on June 15, Chair Wash may signal optimism.
In the short term, whether to cut rates will largely depend on economic data. More importantly, Wash's leadership style at the Fed may differ from the past, requiring the market to adapt to a paradigm shift.
The Impending Wash Era
Policy outlook for the Wash era: A new framework of "balance sheet reduction in exchange for rate cuts."
Core Policy Stance: Advocates for a dual-track approach of "balance sheet reduction + rate cuts," prioritizing balance sheet reduction. He argues that the large balance sheet exacerbates wealth inequality and supports a return to traditional interest rate tools. He proposes a "tightening for easing" policy logic: creating policy space by shrinking the balance sheet while relying on productivity gains from technologies like AI as a rationale for rate cuts. Supports a "gradual and orderly" reduction of the balance sheet to restore its primary monetary policy function and exit quasi-fiscal roles.
Communication Style and Inflation Framework Reform: Strongly criticizes the current "forward guidance" and dot-plot system, viewing them as making policy formulation rigid. Advocates for "incremental deliberation," making decisions at meetings rather than providing the market with a precise path months in advance. Calls for establishing a "new inflation framework," suggesting a greater focus on the "average after removing outliers" rather than the current core inflation metric.
Independence and Political Boundaries: Has repeatedly emphasized maintaining Fed independence, stating he "will never be the president's puppet," and noted that Trump never asked him to promise any specific rate decisions. Advocates for the Fed to "return to its core duties" and not involve itself in non-core issues like climate change or DEI.
Monetary Policy Changes in Other Major Central Banks (ECB, BOJ)
European Central Bank: Raised its three key interest rates for the eurozone by 25 basis points in June, the first hike since September 2023, effective June 17. This marks the formal end of the rate-cutting cycle that began in 2025, making the ECB the first major global central bank to restart tightening in this cycle. The ECB's policy statement explicitly cited the ongoing Middle East conflict pushing up energy prices and spreading to food, industrial goods, and services, with inflationary pressures persisting longer than previously expected. President Lagarde emphasized that inflation diffusion is no longer confined to energy, and this hike is not merely precautionary but a response to actual inflationary pressures. Updated economic projections for the eurozone present a stagflationary picture of "higher inflation, lower growth." Market institutions generally expect 1-2 more 25-basis-point hikes within the year, but not consecutively, with decisions being data-dependent.
Bank of Japan: Likely to raise rates by 25 basis points at its June meeting, with a total of 2-3 hikes possible in the 2026 fiscal year, potentially lifting the target rate range to 1.0%-1.25%.
Signs of US CPI Slowing
Economically, US inflation pressure is the biggest constraint on Fed rate cuts and the core reason for Trump's refusal to escalate war with Iran. Trump's repeated TACO (Tactical Asset Control Operations) has essentially revealed his hand. On June 15, both sides announced an agreement had been reached, bringing the Middle East shock to an end. Crude oil prices fell sharply.
Although the US CPI year-on-year increase in May exceeded 4%, the month-on-month increase has slowed significantly, especially for core CPI, which has essentially returned to pre-conflict levels. With Trump and Wash cooperating, the risk of US inflation spiraling out of control is low.
US Unemployment Rate Unexpectedly Strong in Short Term
The US unemployment rate held at 4.3% in May, but non-farm payrolls rebounded strongly, and job openings also increased significantly, indicating a robust labor market. However, this is primarily due to the FIFA World Cup being hosted in the US, Canada, and Mexico, with most matches in the US, leading to a significant short-term increase in hiring. This is expected to weaken again after July. The short-term employment rebound is unlikely to motivate the Fed to tighten monetary policy.
Sharp Decline in Tech Giants' Free Cash Flow
The combined capital expenditure of the four major cloud service providers (Amazon, Microsoft, Google, Meta) reached $133.672 billion in Q1, accounting for 86% of their total operating cash flow, a record high. Their full-year 2026 capital expenditure guidance totals approximately $700 billion, a year-on-year increase of about 77%.
The sharp decline in free cash flow indicates increasing financial pressure on US companies. For the stock market, valuation and financing pressures have risen significantly. If the Fed cannot return to a rate-cutting easing policy, the bottlenecks for rapid AI development will grow larger.
Concentration of Massive IPOs
2026 sees a clustering of giant US IPOs, with three companies valued in the trillion-dollar range: SpaceX, Anthropic, and OpenAI, all top-tier AI industry firms. The fundraising from these three alone approaches nearly $200 billion.
A review of market performance around the top 100 US IPOs since 2000 shows that the negative impact of large IPOs is often front-loaded: the S&P 500 averaged a decline of about 4% in the 60 days before listing, reflecting pressure from capital reallocation. Liquidity pressure eases quickly post-listing: the median gain for the S&P 500 in the 60 days after listing is about 3%, as the listing of quality companies can actually boost market sentiment.
Overall, this round of mega IPOs is unlikely to alter the medium-to-long-term trend of US stocks but will exacerbate short-term market volatility and divergence within sectors. The real risk lies not in the IPOs themselves but in two overlapping factors: if Fed monetary policy turns more hawkish than expected, keeping rates higher for longer, high-valuation tech stocks already face valuation compression pressure, and IPO fund diversion could amplify the correction; if subsequent company earnings disappoint, combined with supply releases from expiring lock-up periods, it could create a dual pressure of "valuation compression + supply shock."
AI Export Controls Accelerate Domestic Substitution
Anthropic formally released Claude Fable 5 and simultaneously launched Claude Mythos 5. Both are based on the same underlying model architecture, with Fable 5 being the first Mythos-level model open to the public, while Mythos 5 retains more complete capabilities and is currently only available to a select few trusted institutions. However, within just four days, the US Department of Commerce placed both Fable 5 and Mythos 5 on the export control list, restricting access for all institutions and individuals outside the US, as well as all foreign nationals within the US, including Anthropic's foreign employees. Anthropic subsequently suspended all user access to both models to comply with requirements.
This marks the first time the US government has extended export controls from chips to AI large models. Similar to controls on GPUs and lithography machines, this will slow the development speed of US AI firms and reduce their commercial customer base. All non-US companies and individuals will face significant uncertainty in the future application of AI tools. Companies deeply reliant on US AI large models could find themselves paralyzed overnight. For China, this will instead accelerate the necessity and progress of domestic substitution. Investments in and valuations of large model companies and the computing power supply chain in A-shares and Hong Kong stocks are likely to receive a boost.
Tracking AI Development Trends
Core Trend Summary: 1. Benchmark Rapid Saturation: Test sets once thought to be "usable for several years" (e.g., MMLU, GSM8K) have been largely conquered by top models within 12-18 months, with the "shelf life" of benchmarks shortening. 2. Shift in Focus of Progress: 2023: Knowledge breadth, basic generation; 2024: Multimodal, mathematical reasoning; 2025: Complex coding, long-chain reasoning; 2026: Agent tool usage. Notably, the advancement of Mythos capabilities has, for the first time, raised safety restriction issues.
The landmark significance of Mythos lies in: Mythos is the first to segment product lines based on "security clearance" rather than pure performance. Mythos-level code/Agent capability leap: On engineering tasks like SWE-bench and real codebase migration, Mythos-level models have further widened the gap with mainstream 2025 models, serving as one of the core forces driving the continued rise of the intelligence density index in 2026.
Intensifying K-Shaped Divergence in the Global Economy
The K-shaped divergence in the US economy is intensifying, with AI-related sectors in a state of high prosperity and consumer-related sectors in a continuous decline. From the production side, the May Manufacturing PMI and Services PMI showed significant divergence in sentiment, with Manufacturing PMI in a state of high prosperity and Services PMI continuing to decline.
The Chinese economy is in a deep transition, with its biggest characteristic also being K-shaped divergence. The AI/tech sector and exports are in a state of high prosperity, while consumption and fixed asset investment are in a depressed state. AI is not just a technological revolution but has escalated to a strategic level in US-China competition, with both sides seemingly committing all available resources.
Sharp Slowdown in US Real Income, Dim Consumer Outlook
In May 2026, US wage growth was significantly lower than PCE price growth, leading to a sharp slowdown in real income levels. The Consumer Confidence Index hit a record low, with data pointing to a future slowdown in consumer spending. The outlook for consumer expenditure is dim, making economic growth increasingly reliant on growth in AI investment, which in turn intensifies the market's concentration on AI-related stocks.
US Midterm Elections
The most important event in the second half of 2026 is the midterm elections on November 3. The generic ballot, a core indicator measuring national voter preference for parties, currently shows the Democratic Party leading for six consecutive weeks, its best performance at this point since the 2018 midterms. Overall polls show the Democratic Party maintaining a lead in the national generic ballot, with House election prospects clearly favoring Democrats, while Republicans retain a defensive advantage in the Senate.
Trump's overall approval rating is around 38%-39%, down about 4 percentage points from January 2026, with a disapproval rate of 58%. Historical patterns show that when a president's approval rating is below 50%, the incumbent party is highly likely to lose the House in midterms; when below 40%, the risk of losing both chambers increases significantly.
Trump's possible strategy: Use short-term administrative measures to quickly create visible benefits for people's livelihoods and diplomatic peace achievements to mask inflation and economic weakness; simultaneously, rely on identity politics issues to solidify his base's turnout, aiming to minimize the Democratic lead in the House and retain a Senate majority.
Therefore, it is highly probable that a US-Iran peace agreement will be signed to suppress oil prices. Concurrently, implementing tax cuts is likely. The year-on-year growth rate of the US fiscal deficit remains in negative territory, providing some room for expanded fiscal expenditure.
Overall Ample Chinese Liquidity
Overall financial liquidity in China remains ample. In May, M1 growth rate picked up, M2 growth remained stable, and the M1-M2 growth gap continued to narrow. The gap between M2 and aggregate financing growth continued to decline. Financial market funds are abundant, with medium-to-long-term interest rates at low levels.
Decline in Corporate Surplus Liquidity
Although money supply M1 maintained moderate growth, the PPI rebounded rapidly due to the oil shock, leading to a decline in corporate surplus liquidity, exhibiting some characteristics of imported inflation.
Continued Weakening of Credit Market
As of May, loan growth year-on-year was 5.5%, down 0.1 percentage points from the previous month. New RMB loans in May alone were 520 billion yuan, less than the same period last year, indicating credit expansion weaker than seasonal levels. New government financing was lower than the same period last year, with the year-on-year growth of government bond financing gradually declining. The proportion of indirect financing continued to fall, while the role of direct financing increased significantly. The balance of RMB loans to the real economy accounted for 60.5% of the aggregate financing stock, down 1.2 percentage points year-on-year, indicating the gradual weakening of traditional credit's dominant role. The balance of government bonds grew 15.1% year-on-year, and the balance of corporate bonds grew 8.4% year-on-year, making bond financing the core driver of aggregate financing growth, highlighting the role of fiscal stimulus and direct financing stepping in. The balance of trust loans grew 7.1% year-on-year, showing marginal recovery in off-balance-sheet financing, with financing channels for the real economy becoming more diversified.
Slight Recovery in Fiscal Deficit
In the current economic downturn, private sector credit demand is inherently weak, relying mainly on the leverage of fiscal funds, making fiscal funding a key focus. Since 2026, the expansion of China's fiscal deficit has moderated, with year-on-year growth continuing to slow. The judgment on the economy by the Politburo in April was relatively optimistic, reducing the impetus for fiscal expansion.
Growth in Non-Bank Financial Institution Deposits
The transformation of savings accelerated in 2026. In May, deposits of non-bank financial institutions increased by 1.14 trillion yuan, with a cumulative increase of 5.31 trillion yuan over six months. The proportion of non-bank financial institution deposits broke through the 2015 high, reaching a historical high of 11.56%.
A-Share Fund Inflow Situation
Cumulative fund inflows into A-shares in the first half of 2026 retreated from high levels, with the largest outflow seen in ETFs, totaling 400 billion shares redeemed, primarily from national team and institutional funds.
Sustained Strong Import and Export Performance
China's net exports maintained strong growth in 2026. In May, export growth was close to 20%, and import growth was 27%. The monthly trade surplus reached $105.43 billion, expanding by $20.61 billion from the previous month, the highest level for the same period in history. AI-related products saw explosive growth, contributing over half of the export increment. Integrated circuit export value grew 110.9% year-on-year, accelerating by 10.8 percentage points from the previous month. Exports of automatic data processing equipment and parts grew 66.1% year-on-year. These two categories combined contributed 9.4 percentage points to overall export growth, accounting for more than half of the monthly export increase. Mechanical and electrical products were the absolute mainstay of exports, lifting overall export growth by 11.1 percentage points in the first five months. Within this, exports of automobiles, electrical equipment, and ships grew 45.5%, 24.7%, and 22.5% year-on-year respectively, indicating the continuous consolidation of global competitive advantage in capital goods like new energy vehicles and high-end ships.
Recovery in Fixed Asset Investment Growth
Fixed asset investment reversed the rare decline of last year in the first two months, beginning a recovery growth, mainly driven by the government's 15th Five-Year Plan and the completion of most local government debt resolution, allowing increased use of new local government bonds for investment. However, it declined again after March. From January to April, the cumulative scale reached 14.1293 trillion yuan, down 1.6% year-on-year, with the growth rate slowing significantly by 3.3 percentage points from Q1. In April alone, it fell 2.36% month-on-month, significantly below the levels of the same period in 2024 and 2025, highlighting short-term downward pressure. Although the central government later introduced plans for "six networks" construction, weak credit data in May and continued slowing government bond issuance suggest insufficient momentum for investment growth.
Recovery in Retail Sales Growth Rate
The state of continuous decline on the consumption side in 2026 did not change, with the pace of month-on-month decline still expanding.
Imported Inflation Pushes Chinese Prices into Positive Territory
Both CPI and PPI turned positive in the first half of 2026, especially PPI, which was noticeably impacted by oil. However, considering demand, endogenous momentum is significantly insufficient, with the inflation primarily driven by supply-side imported factors.
Index Profit Growth and Valuations
Nominal GDP Growth and CSI 300 Profit Growth
Nominal GDP showed signs of recovery in 2026. In Q1, CSI 300 index profit grew 5.22%, better than last year. Real GDP was essentially flat with last year, but price factors were significantly better. Full-year nominal GDP growth may exceed 6%, driving mild profit growth for the CSI 300 index.
Industrial Enterprise Profit Growth and CSI 500 Profit Growth
The trend and inflection points of CSI 500 profit growth are largely consistent with industrial enterprise profit growth. Industrial enterprise profit growth rebounded significantly in the first half of 2026, with cumulative profit growth of 18.2% as of April. From an inventory cycle perspective, inventory growth of 10% was significantly higher than revenue growth, indicating the recovery in the inventory cycle has a stockpiling characteristic. While there is no immediate concern, the growth foundation is not solid.
K-Shaped Divergence in Industrial Enterprise Profits
Profit margins steadily recovered in the first half, but structural divergence was significant. Sectors like computer & communications, non-ferrous metals, and chemicals far outpaced others, while home furnishings, automobiles, and liquor were at the bottom. With continued increases in AI investment, reversing this extreme divergence in the short term faces significant challenges.
Structural Shift in Index Sector Composition
Due to the high concentration of market activity in the AI hardware sector in the first half of 2026, the sector composition of major indices changed noticeably. As of the end of May, the information technology sector weight in the CSI 300 exceeded 30%. The financial sector weight declined significantly. However, the financial sector weight remains highest in the SSE 50. In the CSI 300, the weights of Ingenic International and Contemporary Amperex Technology (CATL) have surpassed that of Kweichow Moutai, ranking first and second respectively. The SSE 50, with lower tech content, performed the weakest.
Main Composition of Hang Seng Tech Index: Software + Consumption + Automobiles
The Hang Seng Tech Index composition is notably lacking in hard tech components. Its largest weights are mainly software services, consumption, and automobiles. It essentially exhibited bear market characteristics in the first half, down nearly 30% from last year's highs.
Reasonable Risk Premium, Higher Attractiveness After Phased Adjustments from External Shocks
From a capital allocation perspective, the risk premium rate is the core indicator. At the peak of past bull markets, risk premium rates reached very low levels, making stocks very unattractive compared to bonds and leading to large-scale capital outflows. The percentile of the SSE 50 risk premium rate is at the 55% level. The current risk premium rate remains at a neutral level. Compared to history, the core reason the current risk premium rate is not high is the extremely low interest rate level.
CSI 300 Price-to-Earnings and Price-to-Book Ratios
As of June 14, the CSI 300 P/E ratio is above the 89th percentile over ten years, and the P/B ratio is at the 43rd percentile. The valuation level of the CSI 300 is neutral to high, while profit growth remains at a low level.
CSI 500 Valuation
As of June 14, the CSI 500 P/E ratio is at the 87th percentile over ten years, and the P/B ratio is at the 81st percentile. High but not extreme.
CSI 1000 Valuation
As of June 14, the CSI 1000 P/E ratio is at the 87th percentile over ten years, and the P/B ratio is at the 72nd percentile. High but not extreme.
Hang Seng Index Valuation
Hong Kong stocks are an important component of Chinese equity assets but are an offshore market, previously dominated by foreign capital. However, with continuous inflows through Stock Connect, domestic capital now essentially holds half the market, gaining some pricing power. As of June 14, the Hang Seng Index P/E is 12x, in a historically high range. Looking at the adjusted risk premium rate (using the average of the 10-year US Treasury and Chinese government bond yields as the risk-free rate for calculation), it is currently below the long-term historical average. For the second half of 2026, a decline in US Treasury yields and monetary policy is hard to foresee, providing no impetus for valuation expansion. Earnings also largely depend on the Chinese economy, with limited room for improvement.
Hang Seng Tech Index Valuation
The Hang Seng Tech Index is mainly composed of software, consumption, and automobiles. Even with giants like Alibaba and Tencent, revenue is dragged down by Chinese consumption, while expenditure requires heavy spending on an arms race, with uncertain future returns. Current valuations are in a historically low range, primarily dependent on earnings changes, and currently lack signals of improvement.
S&P 500 Index Valuation
Both the S&P 500 P/E and P/B ratios are at historical highs, comparable to the 2000 internet bubble. However, the Nasdaq in 2000 was in a startup phase, unlike the current dominance of tech giants, making valuation comparisons less meaningful. The core factors supporting US stocks are the rate-cutting cycle and expectations for AGI (Artificial General Intelligence). The first factor has been undermined by the oil crisis. The second factor is un-falsifiable.
ChiNext Index Valuation
As of June 14, the ChiNext Index P/E percentile is 58%, and the P/B percentile is 73%, placing it at a medium level. Q1 profit growth was 24%, with hardware equipment and electrical equipment as the main sector weights. Profit growth in the second half is still in an upward phase. It offers the best value among major broad-based indices.
STAR Market
As of June 14, the STAR 50 Index P/E percentile is 93%, and the P/B percentile is 89%, at top levels. Q1 revenue growth was 20%, and profit growth, due to a low base, was 500%. Full-year growth is expected to be around 150%. The domestic computing power sector is still in a catch-up phase, with high growth justifying high valuations.
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