Wang Sheng: The market will be even more "brilliant" next year, and all Chinese assets will eventually be revalued

Recently, Wang Sheng, General Manager and Chief Strategy Analyst of Shenwan Hongyuan Securities Research Institute, shared some preliminary thoughts on 2026 at the fourth quarter investment joint meeting of Bosera Asset Management.

Titled "Waiting for the Mountain Flowers to Bloom," he predicts that with the onset of turbulent times in the second half of this year, China's capital market will unfold into a more vibrant tomorrow in 2026.

Looking ahead to 2026 from the fourth quarter of 2025, investors' confidence will translate into current actions. Do not fear the fluctuations caused by external uncertainties; instead, these fluctuations present opportunities for allocation.

1. From the perspective of the fourth quarter of 2025 looking at 2026, the expectations are relatively optimistic, and the market in the fourth quarter of 2025 will not be poor.

2. The yield on stocks is now slightly higher than that on bonds. Is this slight difference enough? Far from it.

3. If there is a deep understanding of the long-term competitive landscape in the world, long-term confidence will be stronger.

4. In the medium to long term, the downward trend of the US dollar is an inevitable trend. As the dollar weakens, global risk assets will certainly experience systematic increases.

5. Do not assume that foreign capital is not entering the Chinese market just because you have not observed significant inflows; this could be a new normal in the future.

6. In the process of reconstructing the new monetary order, gold is a very important asset allocation choice. Even though it has risen significantly, it should still be closely monitored.

7. The price increase of leading domestic companies is not only an internal pricing rise but also reflects globally, which is essentially part of the reconstruction of the world order.

8. People will become increasingly optimistic about pricing factors, which is a more important fundamental for this bull market, rather than constantly focusing on whether the traditional economy can be compensated by the new economy.

9. Structurally, attention should also be paid to Hong Kong stocks, as this round of market activity is significantly different from 2015 due to the increased depth and inclusiveness of the entire Chinese capital market.

10. The important direction of artificial intelligence will be further developed in 2026. There will be many new directions in applications, making the rise likely not limited to overseas computing power.

11. High dividends are the foundation for all institutional investors. As of today, the dividend yield of the CSI 300 minus the risk-free rate is still at the 90th percentile historically, so are high dividends really expensive? Not at all.

12. The typical representatives of high ROE Chinese consumption and brands from 2021 also have long-term upward opportunities; ultimately, all Chinese assets will be revalued.

Using the first person, some content has been omitted.

The Fourth Quarter is a Concentration of Expectations for the Next Year

You may find it strange why we are discussing issues related to 2026 and even longer-term matters now. I believe a significant characteristic of the Chinese capital market is its long-term perspective in short-term actions; many medium to long-term expectations quickly reflect in current asset prices, so we need to view issues from a longer-term perspective Second, there is a characteristic of the market in the fourth quarter of each year: it often serves as a highly concentrated expectation for the following year. Therefore, when we look at 2026 from the perspective of the fourth quarter of 2025, if the expectations are relatively optimistic, the market performance in the fourth quarter of 2025 is likely to be good.

Of course, by the time we reach 2026, there will be many uncertainties, and changes may occur. Thus, people always stand in a specific present, pricing asset values based on their current understanding of the future, which is our understanding.

Equity Ten-Year Compound Interest Slightly Higher than Bonds

In this context, our proposed title is "Waiting for the Mountain Flowers to Bloom," which embodies a spirit of revolutionary optimism. This represents our view on the capital market for 2026 and even longer-term, reflecting our continued optimism about the market as we approach the fourth quarter of 2025.

Looking at the annual returns and relative rankings of various major asset classes over the past 10 years, we can see that the compound return rate of equity assets over the past decade is not particularly high.

By the end of 2024, the compound return rate of 10-year government bonds reached as high as 4.7%, while stocks, represented by the CSI 300 Index, stood at only 3.3% by the end of 2024. Even when including dividend yields, the return remains quite limited.

Now, standing in 2025, if we observe using the prices from the end of August, we can see that (equity) yields have somewhat recovered. The total return index of the CSI 300, when dividends are added back, has a compound return rate of about 5.3% over ten years, while the 10-year government bond yield has returned to a compound return of 4.3% over the same period. Stocks have finally slightly outperformed bonds in terms of yield.

Is this slight edge enough? Is it already reasonable?

We believe it is still far from enough; the future growth potential of equity assets is clearly more prominent.

Understanding the Global Landscape

Of course, everyone invests to take on risks for returns, and theoretically, the risk premium obtained should be much higher than our risk-free rate. What exactly is the market worried about that has caused current yields to lag?

First and foremost, it is undoubtedly about understanding the global landscape. To clarify the unprecedented changes in the world by 2026, I think we need to ask ourselves several questions, and we will explore this with open-ended questions without providing direct answers.

At the end of 2024, I created a chart depicting the China-Pakistan Economic Corridor, and we specifically emphasized the economy while also illustrating the first island chain. If we were to draw another chart at the end of 2025, I would like to ask everyone: is it really enough to only depict the first island chain?

I believe that if there is a deeper understanding of the long-term competitive landscape in the world, people's long-term confidence will be stronger, enabling them to face some short-term fluctuations. For example, recently we have seen some changes in tariff expectations, which will give us more confidence Of course, it should be reminded that in 2026, as the "once-in-a-century change" further progresses, are some countries and regions in the world, such as the European Union, in a relatively passive position in the competition of manufacturing compared to us? Will the debt in these regions face certain difficulties and problems at that time? Will their difficulties and problems be different from those in 2011?

In 2011, the European debt issue was concentrated in Southern Europe. Now, do some countries facing challenges in manufacturing have even greater pressure? If we consider the other party as an important export target industry and company, should we conduct in-depth research to respond to potential uncertainties and changes that may arise in the future, next year? This is something everyone needs to think seriously about.

This enormous change in the global landscape presents both opportunities and challenges for us, and we need to conduct thorough research in advance. In the future, when we pay attention to price factors, the rise of China's national influence and its significant impact on the overall price determinants is worth deep consideration.

The downward trend of the US dollar is an inevitable trend

Against this backdrop, the entire world order is clearly undergoing tremendous changes. We believe that the first major change is the financial order. (Discussion) The change in the financial order undoubtedly involves the US dollar. We believe that in the medium to long term, the downward trend of the US dollar is an inevitable trend.

Although we see a temporary strengthening of the dollar index in the fourth quarter of 2025, everyone must understand the deeper factors behind this strengthening. If it is due to potential changes in Japanese leadership, leading to significant changes in liquidity expectations for the yen or expectations for Japan's fiscal deficit, this may result in increased liquidity in Japan, causing the yen to weaken and the dollar index to strengthen. Is this change actually a good thing for risk assets? It is worth everyone’s careful consideration.

We believe that during the process of the dollar weakening, global risk assets will certainly experience systematic increases, and one should not be overly concerned due to short-term fluctuations.

At the same time, historically, during debt reduction cycles in the US, the nominal return rate of US stocks generally does not perform poorly. In fact, during periods of dollar decline, the nominal return rate of US stocks is usually positive, although it does not outperform gold.

Therefore, the significant volatility in US stocks leading to a substantial decline in the risk appetite of some Chinese technology stocks should not be overly concerning.

The increase in the allocation of Chinese equity assets is an inevitable trend

Within the global allocation of equity assets, we believe that the increase in the proportion of Chinese equities is still an inevitable trend. However, many people are often confused as this increase in equity proportion, especially in active management, seems to lack a noticeable rise in its share.

Why?

What factors are influencing this allocation?

We understand that this can be divided into several stages. The first stage involves the primary and primary-and-a-half markets, where foreign capital may enter first. Therefore, we notice that among cornerstone investors in the Hong Kong market, the proportion of foreign capital is rapidly increasing, and there is no shortage of European and American funds among foreign capital At the same time, we observe something interesting in the secondary market: passive funds continue to flow in, while active funds seem to be less strong. Of course, the outflow speed is gradually slowing down and becoming more stable. This means that for foreign capital, investing in risk assets represented by China seems to be increasingly inclined towards using ETFs and passive forms, which may differ from previous cycles of foreign capital inflow.

Everyone should pay close attention and not assume that the lack of significant inflow of foreign capital in active management means that there is no long-term capital entering the Chinese market. This could potentially be a new normal in the future, triggered by significant structural changes in the global asset management industry.

Therefore, we believe that during the dollar downcycle, the global risk assets gradually increasing their allocation to Chinese assets is an inevitable trend.

Gold Still Requires Close Attention

During the process of reconstructing the financial order, our monetary order is likely to face significant changes as well. So I raised this question: if there were to be another Keynes vs. White debate, are Chinese financial professionals prepared? What kind of solutions can we propose during this process?

I think regardless of what the final solution looks like, China is a country that advocates for a community with a shared future for mankind, so it is highly likely to be a diversified currency solution, with gold potentially being the backbone.

In our view, gold has faced challenges to its historical status largely because the growth in mining output could not keep up with the increase in monetary demand, which is fundamentally driven by the significant growth in trade brought about by globalization.

However, after 2008, the ratio of global trade to GDP seems to have slowed down, which is a result of the de-globalization pattern. Yet, precisely under such a pattern, as global trade growth slowed and monetary demand did not increase as rapidly, gold has regained its importance and can play a significant role again.

In this context, we believe that in the process of reconstructing the new monetary order, gold is a very important asset allocation choice for everyone. Even though it has risen significantly, we may still need to pay close attention.

Focusing More on Price than Quantity

In this context, we need to return to domestic issues. Many people are most concerned about the quantity of the economy, always fixated on GDP, but we are more focused on the price factor. There are two core issues: one is that our domestic CPI, PPI, and GDP deflator indicators have similarities with corporate profits and the supply-side reforms of 2016 and 2017, but they are also fundamentally different, which we believe is due to essential differences.

It is highly related to the unified large market and the market-oriented reform of factors.

In the long term, we need to fully explore the prices of our factors so that the costs of these enterprises can be fully reflected. Once costs are reflected, the pricing of related products may improve, and the competitive landscape of the industry will significantly improve.

The pricing improvement of leading companies not only leads to an increase in domestic pricing but, more importantly, fully reflects the national influence and cultural influence globally. This is essentially a reflection of the reconstruction of the world order and how it ultimately impacts the profitability of listed companies I want to tell everyone that it represents a successful example of how Chinese products reflect their national influence and cultural influence in their pricing. We will see more and more such successful examples in the future. The corresponding enhancement of pricing power is the core driving force behind China's manufacturing industry moving towards both ends of the "smile curve," ultimately leading to an upward shift in China's pricing factors and potentially exceeding expectations for corporate profits.

By grasping this driving force, it is very likely that everyone will find that the GDP growth rate maintains a medium to high growth, but corporate profits, especially for leading companies, continuously exceed expectations.

So why, up to this point, are there still many investors who cannot fully understand the fundamental logic behind this round of bull market and attribute it to mere liquidity? In fact, there are very deep fundamental changes behind it.

Of course, this pricing power also comes from the rising share of China's manufacturing industry. Currently, the value added of China's manufacturing industry reached 32% by the end of last year, measured in US dollars. If we consider purchasing power parity, it could easily double.

The last time humanity reached such a height was in the 1960s in the United States, when the US accounted for 39% of global manufacturing. After that, someone in the US called for an increase in the prices of American goods. This time, Chinese goods also need to increase in price, and in this process, as China goes global, some industries will inevitably relocate abroad, but this relocation is not entirely the same as any previous industrial relocations in history.

Taking the textile industry as an example, historical industrial leaps often crossed oceans, leaving the influence range of the original powerful country.

This time, China is particularly attentive to this aspect. The Southeast Asian regions we are moving into have a very good historical depth of cooperation with us. This capacity relocation may seem like it is moving abroad, but in reality, we still have a very good influence over it.

On the cost side of these manufacturing industries, we have a stronger influence. The pricing factors we discussed earlier include the most important PPI, and the second important factor is housing prices. Many investors are confused about this issue, as there seems to be no immediate signs of improvement.

We understand that this is about good housing. It is essential to understand the structural impact of good housing on housing prices. We have seen the emergence of a structurally new market, where the product quality is completely different from our previous real estate market. The usable area, unit ratio, and floor height will all be better, and you will be deeply attracted to these new products. At this time, the market has not seen particularly high supply in the past few years, new construction has been average, and inventory is not particularly high, which could lead to structural demand.

From the beginning, we are migrating towards these improved good houses from our old, dilapidated properties, and because the supply of these good houses is relatively low, their price elasticity may be quite large, thus forming a positive effect that ultimately boosts confidence and expectations.

If this effect occurs, I believe everyone will become increasingly optimistic about pricing factors, which is the more important fundamental aspect of this round of bull market, rather than always focusing on the traditional economy and analyzing whether its volume can be compensated by the new economy. We think this is not a particularly important topic. Of course, the traditional economy cannot decline too quickly; as long as it can enter a relatively stable state, we believe that there have been relatively good capital market conditions historically after 2012 and 2016.

Confidence Will Further Boost Risk Appetite

At the same time, more important than the profits of the enterprises we mentioned is confidence, which is typically reflected in further support for the development of private enterprises.

We have always adhered to two unwavering principles, showing great care for private enterprises. Recently, with the further recognition gained from DeepSeek, and seeing Alibaba making good breakthroughs in the chip sector, we believe that the role of private enterprises in technological innovation has been further enhanced, and many policies will provide them with more benefits.

For example, recently there have been some structural tools, with 500 billion, requiring that 20% must be invested in private enterprises. I believe this (tool) will play a greater role for private enterprises in technological innovation and further enhance the risk appetite in the capital market.

This is the fundamental basis for what we call a bull market.

Liquidity Will Definitely Not Disappoint Everyone

In addition to the fundamentals, there is also our liquidity aspect. What we are most concerned about is undoubtedly why the M2 data exceeds everyone's expectations every month; why there is such a significant change in residents adjusting their asset allocation structure, paying more attention to the equity market. Of course, we will see the latest M1 and M2 data today at noon or in the afternoon. We believe that in the larger direction, the earning effect of equity assets is continuously strengthening.

In this process, the entire asset allocation of residents no longer prioritizes real estate, so real estate will definitely become an asset "behind" our stock market, and the stock market will become an indispensable part of residents' future asset allocation. Therefore, the influx of new funds into the equity market in the future may be unprecedented since 2007.

In 2014 and 2021, the bull markets did not clearly see a decline in the growth rate of savings deposits, but this time is different, so we are looking forward to it; liquidity will definitely not disappoint everyone.

Most Optimistic About Artificial Intelligence +

Whether in terms of fundamentals or liquidity, we have very good conditions for a bull market.

Structurally, we are very focused on Hong Kong stocks. Not only A-shares, but Hong Kong stocks are also very important because one significant difference from 2015 is that the overall depth and inclusiveness of the Chinese capital market have greatly improved.

Because Hong Kong stocks have become the target of inclusive finance and an important direction for public fund investment, this has allowed the brilliance of inclusive finance to shine on Hong Kong stocks, enabling more inclusive assets in Hong Kong stocks to be better repriced, which is completely different from 2015.

At the same time, in this process, Artificial Intelligence + is the direction we are most optimistic about in industrial trends, and in this direction, there are many institutional investors in Hong Kong stocks who can take action on valuations, while the growth perspective is also quite good. Additionally, there are significant advantages in the scenarios of artificial intelligence and in the research and development of cutting-edge technology Therefore, artificial intelligence is the direction we are most optimistic about in industry trends, and the Hong Kong stock market has many indispensable and excellent investment targets, which greatly enhances the depth of our Chinese capital market in this round. Thus, the current bull market in the capital market will be more confident.

Of course, important directions in artificial intelligence will be further developed in 2026. We believe there will be many new directions in applications, which means the rise may not be limited to overseas computing power; many of our traditional industries will also be transformed by using artificial intelligence or create new demand for valuation reshaping opportunities. This opportunity is likely something we need to think seriously about.

There are also some areas where China has advantages, such as military industry, as well as new consumption and innovative pharmaceuticals.

High Dividends Are Not Expensive, Just May Not Outperform Quality Technology

There are two issues that must be faced. The first is what to do about high dividends? As everyone knows, I have been a flag bearer for high dividends since 2022. After so many years, what should we do about high dividends today? It seems that excess returns are not as prominent.

But I want to encourage everyone; the absolute return space is still very large. Of course, relative returns may not outperform those highly growth-oriented quality technology assets in China, which is the trend. However, the absolute return space remains significant.

We see many excellent companies that have been targeted; their PB valuations are even below 0.5 times PB, not to mention that there are many companies in the Hong Kong stock market with PB below one.

High dividends are the core holdings for all institutional investors. As of today, the dividend yield of our CSI 300 minus the risk-free rate is still at the 90th percentile historically, so are high dividends really expensive? Not expensive, it's just that they may not outperform other assets.

The "Best" Assets

The second issue that must be faced is what to do with the best assets from 2021?

What about the typical representatives of high ROE Chinese consumption and Chinese brands that global investors loved in 2021?

I want to tell everyone that they also have long-term upward opportunities. In this round, as the market transitions from a structural bull to a comprehensive bull, we believe that all Chinese assets will eventually be revalued. Some assets have risen early, while others have risen later due to certain flaws in short-term logic, but their long-term logic seems to have many highlights.

For example, we see that the market share of the liquor industry is still continuously rising. Can they really not apply artificial intelligence to improve their entire production and sales process? Also, has their dividend yield reached a very attractive state?

These are all worth our (attention). Especially returning to the theme of the fourth quarter, we believe the market style will be more balanced, and some value-type assets will also receive certain favor from the market.

In this case, we pay sufficient attention to some previously relatively stagnant industries and directions. This is our consideration of the prosperity and rotation of various industries from a comparative perspective, which can also serve as a reference for everyone Finally, we would like to leave everyone with a sentence: When the mountain flowers bloom in splendor. With the beginning of the turbulent second half of this year, the capital market in China in 2026 will unfold into a more romantic tomorrow.

Looking ahead to 2026 from the fourth quarter of 2025, investors' confidence will translate into current actions. We believe that one should not fear the fluctuations caused by some external uncertainties; rather, these fluctuations present opportunities for allocation. We hope everyone can grow together with this great era and fully enjoy the wonderful opportunities brought by asset allocation, asset appreciation, and preservation in this great era.

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk