AsiaNet 201343

HANGZHOU, China, Dec. 25, 2025 /Xinhua-AsiaNet/--

Recently, at the annual strategy conference hosted by HuaAn Funds, Li Chao, chief economist of Zheshang Securities, delivered a systematic analysis of China's macroeconomic outlook and major asset trends for 2026.

Li predicted that the market's primary theme next year will remain the catch-up rally fueled by declining interest rates amid rising liquidity, with technology and dividend sectors emerging as the core drivers of structural growth, offering clear guidance for investors' asset allocation strategies.

Four - Tier Decision - Making Framework: China - U.S. Dynamics Steer Policy Direction

Li highlighted that future economic policy decisions must be anchored in a "four-tier framework," prioritized as follows: China-U.S. strategic dynamics, social stability, structural transformation, and economic growth. This framework has been validated through numerous asset allocation cases over the past 6-7 years.

"We are no longer operating within a simplistic growth-centric decision-making model; instead, economic policies and asset prices require analysis from a more macro perspective," Li said.

He noted that China-U.S. interactions are evolving across three key fronts - technology, finance, and geopolitics. While the risk of intensified technological rivalry has significantly eased and geopolitical tensions are unlikely to escalate sharply, financial sector competition has entered a new phase.

"The entry of national capital forces represented by Central Huijin Investment Ltd., combined with the steady inflow of long-term funds such as enterprise annuities and occupational annuities, is laying a solid foundation for a sustained bull market in A-shares," Li noted.

Li added that fiscal policy in 2026 will shift from the extraordinary stance adopted in 2025 to a balanced approach integrating counter-cyclical and cross-cyclical adjustments, with a potential modest pullback in the deficit ratio. However, structural investments in technology and industrial stability will continue to be ramped up.

Rate Cuts to Drive Stock - Bond Bull Market, Catch - Up Rally to Unfold

Regarding major asset allocation, Li put forward a core forecast: the equity market's rally driven by declining interest rates has not yet fully played out, and 2026 will mark a catch-up phase.

He indicated that the 10-year government bond yield is likely to fluctuate between 1.5% and 2% in the near term, with a midpoint of 1.75%, noting that interest rates will ultimately be determined by economic fundamentals and monetary policy.

"During years of quantitative easing in the U.S., Europe, and Japan, declining interest rates have consistently fueled simultaneous bull markets in stocks and bonds. In China, however, the previous sharp drop in risk-free rates failed to trigger a similar rally, primarily due to market concerns over China-U.S. frictions and structural transformation," Li said, adding that since 2025, market confidence in these two areas has improved markedly, and this trend is set to continue in 2026.

"Technology strategies thrive in high-risk appetite environments, while dividend strategies perform well when risk appetite is low," Li noted, proposing an allocation logic tied to geopolitical conditions: "Opt for dividends during periods of China-US confrontation, and tilt toward technology when cooperation prevails."

Li explained that in a low-interest-rate environment, technology sectors stand to benefit from long-term profit expectations, while dividend assets gain investment appeal through their high dividend yields.

" Good Housing "  Policy Delivers Results, Real Estate Enters Quality - Oriented Era

In the real estate sector, Li highlighted the "good housing" initiative promoted by the Ministry of Housing and Urban-Rural Development.

Li detailed the policy's tangible outcomes: newly delivered projects have achieved significant upgrades in sound insulation, constant temperature control, and floor area ratio (surpassing 95%), creating a "top-tier project effect" that has stabilized housing prices in first-tier cities.

"These projects are set to become benchmark developments, driving strong stabilization in the primary housing market," Li said, adding that the "good housing" policy has yielded positive results since its launch earlier this year, exerting a substantial and lasting impact on the sector.

New Quality Productive Forces Investment Accelerates, Manufacturing and Infrastructure as Key Drivers

Discussing the path to an economic strong start in 2026, Li predicted that manufacturing investment growth will improve significantly starting from the first quarter. The implementation of the central bank's 500-billion-yuan securities finance tool in manufacturing and infrastructure, coupled with increased investment in security-focused generalized infrastructure (such as water pipelines and gas systems), will serve as the core pillar of stable growth.

"Significant capital investment will be channeled into new quality productive forces, and I anticipate a notable pickup in investment growth starting from Q1 next year," Li emphasized, predicting that as the inaugural year of the 15th Five-Year Plan (2026), China's GDP growth is expected to reach 4.8% - slightly below the 5% target but still achieving a strong start.

In consumption and exports, Li projected that the trade-in program will be moderately expanded, and industrial chain gaps in non-U.S. markets will continue to underpin China's export resilience. Regarding prices, he noted that amid low oil prices and the push for high-quality development, the full-year CPI is unlikely to see sharp increases, while PPI may remain around -2%.

Global Outlook: U.S. Stock Market Expansion and Easing, China ' s Assets Gain Allocation Appeal

Li argued that the U.S. dual fiscal and monetary easing will focus on technology and AI manufacturing reshoring, with inflation risks remaining generally controllable. The Eurozone is expected to break through the deficit constraints of the Maastricht Treaty and adopt a dual easing mix of fiscal expansion and monetary loosening.

In terms of asset allocation recommendations, Li expressed bullish views on both A-shares and Hong Kong stocks. A-shares will benefit from the inflow of medium and long-term capital and declining interest rates, sustaining the steady bull market; Hong Kong stocks, meanwhile, are poised to see an upward revaluation driven by Chinese capital repatriation.

Investment Insights: The " Hedging Portfolio "  of Gold and Technology Stocks

Li proposed a straightforward yet effective long-term allocation strategy: a portfolio combining gold and technology stocks.

"Technology represents future-driven innovation, while gold hedges against debt and geopolitical risks - this combination can cover the majority of macroeconomic uncertainties," he explained.

"Those who grasp the macro framework can track risk appetite at high frequency and rotate between technology and dividends. Buy technology when risk appetite rises, and switch to dividends when it falls - this approach has delivered impressive results over the past two years," Li noted. "The key is not to chase every news headline, but to focus on one core variable: risk appetite itself. Understanding it is the key to navigating A-shares' rotation trends."

"In 2026, we must continue to seek opportunities amid the growing pains of structural transformation," Li said. "Driven by both declining interest rates and restored risk appetite, the dual themes of technology and dividends will lead the market forward amid challenges."

Risk Warnings

Unexpected escalation of China-U.S. trade frictions.

Sharp downturn in overseas economies: A major depression in global markets triggered by risk events could lead to a significant drop in external demand, severely impacting China's exports.

Li Chao: Practicing Certificate No. S1230520030002

Source: Zheshang Securities