CITIC SEC has released a research report outlining its investment outlook for the second half of 2026. The report suggests that China's economy will be reshaped by the spillover effects of AI industry capital expenditure cycles and imported inflation, with strong export performance and stable domestic demand. Full-year real GDP growth is projected at approximately 4.7%. In terms of asset allocation, base metals, crude oil, and equities are identified as relatively more certain directions for the latter half of the year. Within equities, structural opportunities are focused on a combination of "AI + Energy/Chemicals". For bonds, interest rates are expected to remain range-bound with limited scope for a breakout.
Key Investment Themes
Looking ahead to the second half of the year, the report expects asset allocation to shift from trading on expectations of loose liquidity to focusing on the certainty of rising inflation and profit cycles. The core constraints will be the retreat of macro liquidity, high PPI levels, and the verification of corporate earnings, necessitating caution towards assets that primarily benefit from liquidity easing. Base metals, crude oil, and equities in both China and the US are seen as offering more certainty. For A-shares, the market should continue to be viewed through the lens of K-shaped divergence, with "AI + Energy/Chemicals" forming a barbell structure balancing offensive and defensive strategies. Furthermore, from a long-term perspective, "adapting to AI" is expected to gradually become the main theme and source of opportunity, centered on solidifying and amplifying intrinsic comparative advantages. For bonds, Chinese government bonds still hold allocation value, but a breakout from the interest rate range is unlikely. For credit bonds, opportunities are suggested in areas like urban investment bonds, real estate, financial subordinated debt, overseas bonds, and green/tech innovation bonds.
Macroeconomic and Policy Environment
The core of China's macroeconomy in H2 2026 is seen as the coexistence of AI-driven external demand support and imported inflation. AI-related exports, hardware components, and demand for intelligent computing and energy storage will continue to support external demand and industrial activity, while geopolitical conflicts are expected to push up the price floor for upstream commodities. Domestic demand is forecast to remain generally stable, with consumption maintaining a pattern of "strong services, weak goods," investment posting low positive growth, and the drag from the property sector converging. Full-year real GDP growth is projected at around 4.7%, with nominal GDP growth at about 5.8%. The central parity for the RMB is anticipated to be in the range of 6.7-6.8. On the overseas policy front, Sino-US relations are expected to remain stable within the year, and the global competition for resilience in resources/energy, modern industries, trade routes, and monetary/financial systems will continue to catalyze self-sufficiency and control.
Investment Strategy Focus
Looking forward, the pricing of Chinese assets should be considered from a global perspective, with opportunities viewed through a K-shaped divergence framework rather than a simple bull/bear dichotomy. The "AI + Energy/Chemicals" combination is expected to form a new barbell structure for the second half. The report identifies RMB appreciation and the CPI-PPI gap as the two most significant factors affecting A-share corporate profits in H2. Within industrial opportunities, the AI investment wave may see internal rotation, transitioning from "building AI" to "adapting to AI," with the core being the solidification and amplification of intrinsic comparative advantages. Furthermore, from both macro and micro perspectives, the "global pricing" of China's quality assets remains a long-term investment opportunity.
Sectoral Analysis and Outlook
Technology: As AI commercialization enters a phase of earnings verification in H2 2026, the tech market is expected to shift from valuation expansion to industrial realization and structural differentiation. While high global tech valuations and crowded positioning pose challenges, model iteration continues to accelerate. Directions like Agent AI, multimodal models, video generation, world models, and physical AI are driving enterprise-level adoption. The gap between domestic and overseas models is narrowing, with "domestic models and domestic chips" driving volume for domestic computing power, semiconductor equipment, and advanced processes. Overseas computing power demand is diffusing along the supply chain to optical modules, storage, PCBs, power supplies, and upstream materials. Opportunities in the infrastructure layer are expected in AI computing power, self-sufficiency, and price increase chains like MLCCs. The model layer warrants attention on Agent AI, multimodal models, and low-valuation cash flow leaders. Application layer opportunities may revolve around AI-driven content/tools going global and IP value re-rating.
Energy & Resources: The main theme is shifting from price volatility post-geopolitical disturbances to fundamental drivers like supply-demand improvements, inventory restocking, and AI demand. The chemicals sector, after a deep correction, offers low valuations. As US-Iran tensions ease and cost-side disturbances moderate, downstream sectors are expected to resume procurement and enter restocking phases. Key areas include fluorochemicals, phosphorus chemicals, potash fertilizers, chemical fibers, dyes, titanium dioxide, and AI upstream consumables. Petrochemicals may see upward movement amid the "Golden September, Silver October" peak season and falling costs. The focus for metals shifts to "computing metals," with copper, tin, rare earths, and rare metals supported by AI infrastructure demand and supply disruptions. Coal may maintain a tight supply-demand balance due to safety inspections, import disruptions, and growing demand for power/chemical coal, with price increases improving earnings expectations.
Healthcare: The industry is entering a qualitative transformation stage where policy optimization and innovation realization resonate. Healthcare has been designated a national emerging pillar industry, with reform trends like optimized centralized procurement, high pricing for innovative drugs/equipment, and commercial health insurance development continuing. Industry performance began recovering in Q1 2026, more notably for innovative drugs/equipment, with valuations and institutional allocations still low. Focus areas for H2 include value verification and data catalysts for innovative drugs, order recovery for CXOs driven by BD and rebounding investment/financing, payment expansion and globalization for innovative medical devices, and bottoming improvements in consumer healthcare. Allocation focus is on leading innovative drug and device companies.
Manufacturing: Opportunities are expected to be driven by global energy transition, AI electricity demand, and the globalization of leading Chinese enterprises. Specifically, battery materials are in a profit recovery phase, benefiting from rising EV penetration, domestic and international energy storage installation, and low supply-side capital expenditure. Power equipment and new energy benefit from explosive AI-driven electricity demand, with growth in power supply systems, key structures, and core components. Focus is on representative companies with expectations for value expansion and market share gains. Home appliance demand diverges between domestic and international markets, but leading companies show resilience. Key allocation themes include expansion into emerging markets, structural upgrades in black goods, liquid cooling for components, and globalized production capacity.
Consumer: Overall consumption recovery remains moderate, with opportunities arising from structural re-pricing against a backdrop of low expectations, low valuations, and low allocations. Policy directions to boost domestic demand are clear, with marginal improvements in CPI and some sub-sector activity. Short-term focus lies in wealth effect transmission, recovery in the travel chain, operational inflection points post-supply rationalization (e.g., hotels, Macau gaming, duty-free, tourism, hog farming, mass-market goods), and opportunities in higher dividend yields. Long-term, the focus remains on new product categories, technologies, channels, and markets.
Infrastructure & Real Estate: The common logic for real estate, property, basic materials, and utilities revolves around improving existing asset quality, AI infrastructure demand, and recovery from cycle bottoms. The property market shows clear bottoming characteristics, with developers shifting from scale orientation to project quality and balance sheet repair. Property investment focuses on AI Data Centers (AIDC), shopping malls, outlets, core city rental housing, hotels, and logistics/warehousing. Basic materials maintain a positive view on the electronic fabric super-cycle and the long-term potential of glass substrates, while building materials await supply rationalization. Utilities, influenced by AI electricity demand, coal cost pressures, extreme weather, and rebounding electricity prices, present allocation value.
Financials: Investment opportunities in the financial sector are gradually shifting from defensive, high-dividend styles towards equity assets with high fundamental certainty. Bank net interest margins and NPL formation expectations are stabilizing, with profits expected to recover quarter by quarter. The securities industry is seeing a trend of head-firm concentration, driven by recovery in equity financing, implementation of systems for derivatives and capital leverage, and developments in wealth management, investment banking, institutional business, and M&A. The insurance sector is shifting from scale to value orientation under the "unified reporting and operations" policy and stricter regulation, with large insurance groups highlighting their competitive advantages.
Risk Factors: The report also highlights several risk factors, including intensification of Sino-US friction in technology, trade, and finance; persistent and recurring geopolitical conflicts leading to significant volatility in raw material and energy costs; unexpected Fed tightening, inflation, or other factors; slower-than-expected AI technology iteration, capital expenditure, or application adoption; weaker-than-expected macro policies or domestic demand stimulus, with property recovery and consumption revival falling short of expectations; significant exchange rate fluctuations and regulatory policy changes; and intensifying industry price wars.