Industrial Market Strategy for 2026: Fierce Competition, Comprehensive Bull Market Sets Sail

Industrial previously emphasized that "the current capital market reversal shoulders heavy responsibilities, and in the future process of economic transformation and development, the capital market will become the core platform guiding resource allocation," and proposed a new logic to boost the stock market: to aid the development of new quality productive forces, provide a channel for residents' wealth allocation, and revitalize high-quality assets. Since the beginning of this year, the three major logics have continued to solidify, the capital market and the real economy are in a virtuous cycle, laying a solid foundation for the underlying logic of this bull market. At the same time, this year, breakthroughs represented by DeepSeek, semiconductors, Siasun Robot & Automation, 6th generation machines, and innovative drugs in various fields have triggered a reassessment of industrial value, strategic confidence in the great power game, further clarifying the future transformation ideas for the "Fifteenth Five-Year Plan," bringing about a change in the macroeconomic "narrative" and cognition in the market in the medium to long term, further strengthening the logic of this round of the bull market and raising the market ceiling. As we approach the end of the year, with the market significantly rising and the Shanghai Composite Index breaking through 4000 points, how will the market evolve in 2026? The full report is as follows: I. Overseas Outlook: Loose liquidity and a weak US dollar are expected to boost Since the beginning of this year, the correlation between the Chinese and US stock markets has increased. On the one hand, in a loose liquidity environment, the outflow of US dollar liquidity catalyzes a general rise in global risk assets, with emerging markets benefiting in particular. On the other hand, the Chinese A-share market has been buoyed by the overseas capital flow themes and the stronger mapping correlation with US stocks. Therefore, we see a significant increase in the correlation between the Chinese and US stock markets, with the rolling 60-day correlation coefficients of the S&P 500 and the MSCI US Schiller PE reaching 39.6 and 39.8 respectively, above the levels of 2021-2024 and equivalent to the levels of the end of 2021, significantly lower than the bubble levels of the early 2000s. Furthermore, when comparing the valuation levels of the main stock indices during several typical market bubble periods, the valuation levels of the M7/Nasdaq 100 are also at historical lows. II. Domestic Outlook: Profit recovery could be the highlight Since the beginning of this year, the quarterly profit recovery of Chinese A-shares has been better than market expectations. After hitting bottom in the third quarter of 2024, the non-financial sector's revenue growth has improved quarter by quarter, turning positive in the second quarter of 2025 and continuing to rise, with a cumulative revenue growth rate of 0.70% in the third quarter of 2025. Additionally, the quarter-on-quarter revenue growth rate in the third quarter of 2025 was 0.77%, the first positive growth since 2021, reaching a five-year high and a moderately high position since 2008. Looking ahead to 2026, the recovery of the nominal economy is expected to provide support for the improvement of listed companies' profits. In the first three quarters of this year, China's GDP growth rate remained among the highest in the world, providing a solid foundation for significant economic recovery. However, the nominal GDP growth rate over the same period was only 4.1%, relatively low compared to other major economies and contributing to market micro-feelings of dissatisfaction. By 2026, the reduction in the GDP deflator and the clear direction of nominal growth are relatively apparent. According to the IMF's latest forecast, China's nominal GDP growth is expected to reach 6.45% in US dollars, significantly higher than the 3.46% seen in 2025. According to the macro team of Xingzheng Securities, under the influence of the anti-internal cycle policy and other protective policies, inflation is expected to continue trending moderately next year, with the CPI and PPI expected to rise to 0.4% and -0.9% respectively by the end of 2026. Based on a weighted calculation of 60% and 40%, the GDP deflator for 2026 is expected to rebound to -0.12%, a significant improvement from the current -0.72%. Economic recovery and price increases are expected to support further improvements in the fundamentals. By breaking down the financial results for the first three quarters of 2025, it is clear that revenue, which reflects genuine demand, is stabilizing and non-financial sectors are likely to see an improvement in profit margins. Despite challenges in the private sector, a regained momentum in the second half of the year under the impact of the anti-internal cycle policies and resurging export demands is expected to push GDP performance and hence profits higher. Several leading indicators of profit have been showing positive signals. Macro leading indicators, like new long-term loans and M1, continue to signal positive trends. With the ongoing anti-internal cycle policies and improvements in market demand, prices are expected to rise and benefit many industries, while the enhanced demand will support a significant rebound in profits for the non-financial sector in the following year. III. Capital Market: Money is never a problem in a developing bull market Industrial's outlook for the capital market in 2025 emphasized that "looking back at the history of the A-share market, as long as there is a reversal in direction, money is never a problem; the key is the pace of money inflow. From a medium-term perspective, the current market needs to abandon bear market thinking, firmly embrace a bullish mindset, and not set limits on the timing and space of the market, because the flow of funds remains strong." Since the beginning of 2025, various types of funds have accelerated their entry into the market as expected, driving the market towards a new high. Looking ahead to the following year, it is reaffirmed that "as long as there is a reversal in direction, money is never a problem." Incremental funds continue to flow, whether it is the new round of residents' wealth allocation to the stock market, the excess return of active equity funds, the firm entry of insurance funds and national teams as long-term funds, or the inflow of foreign capital into Chinese assets. These positive trends are expected to deepen next year and further strengthen the positive feedback loop in the market. 1. Resident funds: The trend of residents' wealth allocation to equity assets continues to gain momentum With the recovery of corporate profits and improving market expectations, the activation of funds has increased, as evidenced by the stabilization and rise of the proportion of demand deposits in the deposit structure. Correspondingly, the sentiment of residents' funds entering the stock market has been significantly warming this year. The net inflows of non-bank deposits have reached nearly the highest level in the past decade, and through various financial channels such as private placement accounts, margin trading, and ETFs, it can be observed that residents' funds have started to increase their allocation to equity assets. Represented by high-net-worth funds such as private placements and managed accounts, high-net-worth funds have been a significant source of incremental capital for the market this year. Since the beginning of this year, the issuance of private equity funds and equity managed accounts has rebounded significantly, indicating that high-net-w