Fund managers see a "mispriced" opportunity in A-shares

Due to geopolitical conflicts in the Middle East, global markets have undergone a notable adjustment since March. Major indexes such as those in South Korea and Germany have fallen by more than 9%. China A-shares and Hong Kong stocks have also seen varying degrees of adjustment.

In response to market volatility, several fund managers, in interviews with the Shanghai Securities News, said that near-term fluctuations are mainly driven by sentiment-related factors, while true excess returns are often found in the “beatings” created by market adjustments. They believe that the current valuation level of the A-share market has fallen back to a range that is attractive, and that there are still fairly clear investment opportunities in areas such as artificial intelligence, companies expanding overseas, and new energy.

**　Excess returns often lie in the “pits”**

Affected by factors such as the Middle East geopolitical conflict, global stock markets have generally declined since March, and risk-avoidance sentiment has surged. According to Choice data: as of March 25, both the month-to-date South Korea Composite Index and Germany’s DAX Index fell by more than 9%; Japan’s Nikkei 225, France’s CAC40, India’s Sensex 30, and the UK’s FTSE 100 Index each fell by more than 7%.

A-shares and Hong Kong stocks have also seen some adjustment, with the net asset values of active equity-focused funds experiencing significant drawdowns across the board.

Faced with such a market environment, fund managers have also felt some pressure.

“A flood of growth in user numbers for AI products on one side, and the Middle East geopolitical conflict on the other side—I’m stuck with questions: what should happen to global inflation? And how will technology giants adjust their capital expenditures?” said a fund manager in Shanghai.

This sense of fragmentation, where geopolitical conflicts intertwine with industry reshaping, is a true reflection of the market’s complexity right now. But after cooling down and thinking it through, the fund manager believes that such disruptions are more of a short-term emotional shock. From historical experience, the market experiences volatility every year due to macro factors, and the path of industry development has never been smooth sailing. Taking the AI industry as an example, although there is short-term volatility and repeated reversals, the long-term direction of technological evolution and commercial implementation has not changed.

Qiu Xinghua, a fund manager at Guotai Franklin Fund, views the current market adjustment as a rare opportunity. “From historical experience, the underlying assets that ultimately deliver substantial returns are basically the ones that run out of the ‘pits.’ What I faced earlier may be similar to what global investors are facing together: truly high-quality things aren’t cheap, and they won’t be discounted for no reason,” she said.

In Qiu Xinghua’s view, each time the market creates a “pit,” it is often due to macro disruptions or shocks from some negative news. At this time, the underlying assets may not fall too deeply, but if one buys against the tide when market sentiment is extremely low, these high-quality assets’ contribution to the portfolio can be enormous. Excess returns often hide in these “pits.”

**　“We can be more optimistic this year”**

Multiple interviewed institutions said that for the A-share market, it can be more optimistic now.

“Recently, Chinese assets have faced some adjustment, but based on the situations in the past few years, market adjustments triggered by geopolitical conflicts have been driven more by sentiment rather than fundamental changes.” said Li Changfeng, Head of Market Strategy at ABN AMRO? (Note: Original text likely refers to “联博基金”; translating as “Lianbo Fund.”)

From an energy security perspective, Li Changfeng analyzed that the impact of energy price fluctuations caused by the Middle East geopolitical conflict on China is relatively limited, mainly thanks to China’s continued efforts in recent years to increase energy reserves and diversify energy sources. Therefore, the overall disturbance to China’s macro fundamentals from the recent oil price increase is controllable.

“With the recent market pullback, the financing balance has not noticeably decreased. Household funds are expected to indirectly participate in the A-share market through channels such as insurance and “fixed-income +” wealth management products. In addition, net outflows of funds from broad-based index ETFs have largely come to an end since February. Considering the incremental macro policy, the sparks of technological innovation, and the ongoing reforms in capital markets and market value management, we believe the valuation of the A-share market is likely to be repaired over the medium term,” said Meng Lei, a China equity strategy analyst at UBS Securities.

Morgan Stanley Fund believes that the A-share market has already priced in the impact of changes in overseas conditions on the global economy, and with the rapid selloff that occurred earlier, this pricing has been relatively thorough. Looking at it side by side, China’s manufacturing advantages are significant, and exports in some areas are expected to benefit accordingly, so there is no need to be overly pessimistic.

Many fund managers believe that the A-share market is highly attractive to global capital right now.

“From the perspective of global valuation frameworks, A-shares are clearly undervalued. Some Chinese leading companies that have absolute competitive advantages globally may be expected to maintain solid compound growth over the next three years, but their valuations may be difficult to improve for a long time. In contrast, some overseas leading companies with similar positions may keep valuations at often above 25x even when they are in industries without clear growth. This difference is enough to explain the issue,” said Li Bo, head of balanced growth for Morgan Asset Management’s China equity team. “Whether it is compared horizontally with global peer assets, or through a vertical historical comparison with A-shares themselves, the current A-share market’s value-for-money is particularly prominent.”

Sheng Jin, Portfolio Director of Huili Group, said that the current valuation of A-shares has fallen back into a relatively more attractive range. From the perspective of industry trends and investment value, A-shares have relatively more solid fundamental support.

**　Multiple areas have significant investment opportunities**

Looking ahead to the A-share market in 2026, the interviewed fund managers believe that there are rich investment opportunities in artificial intelligence, companies expanding overseas, and the new energy sector.

Regarding the AI sector, Sheng Jin frankly acknowledged that when looking back at 2025, the market was rising alongside some uncertainties. At the time, industry skepticism remained about whether capital investment in the AI field could be sustained and whether it would truly be effective. Entering 2026, several key issues have gradually become clearer, and market consensus is taking shape.

First, regarding the capability and sustainability of capital investment in the AI field, there are now clearer answers. Based on public information, across the globe, whether in the U.S. stock market’s technology giants or China’s major internet companies, their cash flow reserves are relatively ample.

Second, AI applications on the edge are showing an accelerating trend toward commercialization, and market recognition is also gradually changing. In 2025, the market still found the miniaturization of large models and edge-side deployment relatively unfamiliar. At present, related applications have been validated in some real-world practices. As users’ and companies’ understanding evolves quickly, it lays the recognition foundation for the next round of industry cycle.

Li Changfeng said that for China’s export companies—especially those in higher value-added sectors—the growth momentum is evident. This indicates that Chinese companies are accelerating their move into the world and upgrading into higher value-added areas. In addition, whether it is China’s “shovel sellers” in AI infrastructure or “users” of AI applications, Chinese companies are actively laying out plans. China’s relatively stable power infrastructure construction also provides a good development space for the AI industry ecosystem, and demand for AI tokens is surging.

Zeng Yingjie, a fund manager in the research department at Invesco Great Wall, believes that the new energy industry has significant structural investment opportunities. It is expected that the industrialization of solid-state batteries will be one of the core issues the lithium-battery sector needs to solve in the next five years. Current industry progress is faster than expected, the trend is becoming increasingly clear, and more companies are expected to deploy in solid-state battery R&D and industrialization.

“Additionally, global data center capital expenditure is continuing to grow, strongly boosting demand for electricity and related equipment, and the overseas expansion of power equipment and power generation equipment is incubating favorable investment opportunities. 2026 will be a year of capacity expansion for the lithium-battery industry. Lithium-battery equipment companies are expected to benefit from both an increase in orders and improvements in profitability; photovoltaic equipment will also show good investment prospects,” Zeng Yingjie said.

(Source: Shanghai Securities News)

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