Policy Support, Clear Main Line, In-Depth Breakdown of Public Fund Investment Strategies for A-Share Second Quarter

Topic: 2025 Fund Annual Report Season Kicks Off: AI Compute Soars, Nonferrous Metals Pull Back—How Should 2026 Be Laid Out?

| \| \| \| — \| \| 　　Tang Xiaodong \| | | \| \| \| — \| \| 　　Li Zhan \| | | \| \| \| — \| \| 　　Wei Fengchun \| | | \| \| \| — \| \| 　　Wang Li \| |

◎Reporter He Yi

As the second quarter is about to begin, a reporter from Shanghai Securities News interviewed Tang Xiaodong, Co-General Manager of the South China Fund macro strategy department; Li Zhan, Chief Economist of the China Merchants Fund research department; Wei Fengchun, Chief Economist of Chuangjin Hexin Fund; and Wang Li, Senior Macro Strategy Researcher at Great Wall Fund. They held an in-depth discussion on hot topics such as the main logic for A-shares going forward, policy measures, market contradictions, and investment directions.

Anchoring: The Main Logic for A-shares Is Set

Shanghai Securities News: In light of the “15th Five-Year Plan” outline, which industries do you think are likely to become the main lines for A-shares next, and why?

Tang Xiaodong: The main line for A-shares will revolve around five directions: first, independent and controllable industrial foundations—focus on industrial machine tools, basic software, and other core production tools to solve the problem of industrial basic capabilities; second, nonlinear growth in frontier technologies—focus on high-risk, high-potential areas such as controllable nuclear fusion and quantum technology, and explore “no-man’s-land” in technology; third, key areas in new infrastructure—fields like the compute power network and data infrastructure will provide the foundation for industrial and AI development; fourth, efficient coordinated development of new energy—investment focus shifts to grid stability, with links such as ultra-high-voltage transmission and grid-forming energy storage becoming key; fifth, new consumption induced by boosting domestic demand—focus on people’s livelihood areas such as the silver economy and child-friendly economy.

Li Zhan: Over the next period of time, the main line for A-shares will center on two core logics: scientific and technological self-reliance and “anti-involution.” On the one hand, integrated circuits, aerospace, biopharmaceuticals, and the low-altitude economy will be developed as emerging pillar industries, while future industries such as quantum technology, embodied intelligence, 6G, and future energy will also receive key cultivation. On the other hand, industries such as automobiles, solar power, lithium batteries, steel, cement, and chemicals are expected to bring about a cyclical repair rally through consolidation and mergers and acquisitions.

Institutions often adopt a dumbbell strategy: on one end, allocate to technology growth main lines such as AI applications, semiconductors, and robotics, focusing on leading companies with relatively high R&D spending; on the other end, invest in leading companies in sectors such as batteries and PV modules that benefit from supply-side reforms—betting on earnings recovery brought by a rebound in prices. In addition, investors can use ETF index investments and portfolios of leading individual stocks to avoid the risk of volatility from a single sector.

Wei Fengchun: The main lines for A-shares mainly include two directions: one is the hard-tech track. The AI full industry chain, advanced manufacturing, and high-end equipment are the core of what will be cultivated as new quality productive forces during the “15th Five-Year Plan” period. They are also a product of the transition of the Kondratieff (Kondratiev) cycle from recovery to prosperity, resonating with the expansion of the Juglar cycle. With faster technological implementation and higher capital expenditure, the certainty of strong earnings growth has been significantly enhanced, together forming the core main line behind the re-pricing of Chinese assets in this round. The second is the field of traditional industry value repricing. Coal, steel, and other industries benefit from switching of inventory cycles and policy coordination. Relying on the integration logic of “old platform + new demand,” they achieve value restoration by following the pace of upgrading in leading industries. These areas are indispensable supporting tracks in the process of leading industries taking shape, and an important supplement to asset repricing.

Wang Li: In the future, as global AI industry trends continue to iterate and penetration rates keep rising across industries, together with China’s breakthroughs in key technologies and future industries, upstream compute power for AI—autonomous and controllable—along with downstream various forward-looking applications, and high-quality supporting infrastructure supply such as electricity and data centers, plus going overseas, are expected to become a distinct investment main line.

Setting the tone: Positive policy signals

Shanghai Securities News: The 2026 government work report sets an expected GDP growth target range of 4.5%—5%. How do you view the macro policy tone?

Tang Xiaodong: The 2026 government work report basically continues the policy tone of 2025. It will keep implementing a “more proactive fiscal policy” and a “moderately accommodative monetary policy.” Stabilizing growth, strengthening technology, and promoting domestic demand remain the key tasks for this year. In addition, considering multiple factors—A-share valuations are not expensive, the regulatory orientation encouraging longer-term funds to enter the market has not changed, and under a low-interest-rate environment, residents’ funds have substantial potential to enter the market—A-shares are expected to continue the “slow bull” trend.

Li Zhan: In 2026, macro policies show even more clearly defined characteristics of being more proactive and effective. The range chosen for the expected GDP growth target reflects a pragmatic approach of “jumping high to reach higher while still keeping one’s steps steady,” leaving room for structural adjustments. Meanwhile, the emphasis on fiscal policy is particularly prominent, including 1.3 trillion yuan in ultra-long-term special government bonds and 800 billion yuan in new policy-based financial instruments, forming a “quasi-fiscal” combo.

Looking ahead, A-shares may enter a long-term market driven by “both capital and policy wheels.” According to calculations, in 2026 A-shares could see incremental capital of nearly 1.5 trillion yuan. Around 934 billion yuan would be comprised of insurance funds and wealth-management funds as the cornerstone of long-term capital. Public and private offerings will also become the biggest variable for marginal improvement. As domestic demand recovery and technology investment continue to be stepped up, the A-share market will gradually兑现 (fulfill) profit expectations after the second quarter. The valuation center of gravity of the CSI 300 may move upward.

Wei Fengchun: From the perspective of cyclical fluctuations and fiscal policy, the economic growth target range set in the government work report is pragmatic in defending the base while also having elasticity. It matches the needs of balancing the total amount and structure in a transition period and reflects a firm commitment to stabilizing growth. The fiscal policy orientation focuses on shoring up weaknesses, strengthening people’s livelihood, and promoting transformation, coordinating with a moderately accommodative monetary policy. This both supports the short-term economy and lays out for long-term high-quality development, releasing strong positive policy signals.

Overall, policy certainty will offset external uncertainties. The A-share market is expected to move upward steadily, but it is necessary to grasp the timing, and focus on stocks with strong earnings realization ability.

Wang Li: Currently, the macroeconomic policy tone is centered on improving quality and efficiency, and breaking reform logjams. It reflects confidence in economic resilience and high-quality development. Both broad and narrow fiscal policies are kept level at high levels, and structurally they show an increasingly clear orientation to “stabilize investment.”

Positive signals will boost the A-share market from three aspects: first, policies will continue to attach importance to nominal economic growth. Nominal growth speed, as a key variable determining corporate earnings and how microeconomies actually feel, is expected to become a main driver of upside in the A-share market this year; second, continued emphasis on “anti-involution” in domestic demand and supply. Fiscal funding supports the optimization and transformation of traditional industries, which is expected to improve consumption and manufacturing investment expectations; third, deepening reform of the capital market—improving mechanisms for long-term funds to enter the market and expanding venture capital and private equity exit channels—which helps enhance market liquidity.

Breakdown: Short-term games triggered by both long and short factors

Shanghai Securities News: Which factors have affected the recent performance of the A-share market? What is the core variable for market liquidity in the second quarter? Which risk factors need to be taken seriously?

Tang Xiaodong: Recently, the A-share market trend has mainly been influenced by factors such as the Middle East geopolitical conflict and the Federal Reserve’s monetary policy stance. Looking ahead to the second quarter, the core variables for liquidity are the evolution of the geopolitical situation and how listed companies perform during the April earnings verification period—i.e., the realization of earnings.

The positive factors supporting the outlook lie in China’s clear advantages in economic resilience and stability, which is conducive to attracting global capital to invest in China. However, there are three major risks ahead: first, the tail risk of war escalating; second, rising oil prices could trigger global reflation, leading to a shift in monetary policy; third, the squeeze-out effect on the demand side from higher energy prices—this needs continuous tracking and response.

Li Zhan: Recently, the A-share market trend is the result of a three-way game among policy expectations, the technology industry cycle, and geopolitical risks. Looking ahead to the second quarter, there are three core variables affecting liquidity: first, the entry timing of insurance funds and wealth-management funds; second, whether public funds and private fund issuance will rebound, which will push the technology growth style to have the upper hand; third, regarding foreign capital, it is expected that the northbound capital incremental amount in 2026 may exceed 100 billion yuan, while Hong Kong stocks remain the preferred destination for foreign investors.

Overall, after measures are introduced—such as general public budget expenditure reaching 3 trillion yuan for the first time, and 800 billion yuan in new policy-based financial instruments being issued—social capital investment will be effectively leveraged. With “anti-involution” policy supporting the expectation of PPI turning positive, the trend of residents’ asset allocation moving toward the stock market has become clear. Multiple positive factors converging will support the A-share market’s performance going forward.

However, there may still be many potential risks, including Middle East geopolitical conflict escalating and pushing up oil prices, thereby constraining monetary policy room; and after global technology competition intensifies, it may affect expectations for the industrial chain, among other things.

Wei Fengchun: Based on the analytical logic of macro drivers and linkage between domestic and external factors, recent A-share performance is mainly affected by three factors: first, the Middle East geopolitical conflict raises the global risk premium, transmitting risk-off sentiment to A-shares and increasing short-term market volatility; second, a surge in oil prices triggers concerns about global inflation. Coupled with a contraction in expectations for the Federal Reserve to cut rates, this disturbs global liquidity and in turn constrains the relatively loose space for A-share liquidity; third, A-shares themselves are in an adjustment and consolidation cycle. Valuations of high-level track stocks from earlier periods gradually revert. In addition, stock rotation by existing capital further exacerbates short-term market fluctuations.

Looking ahead to the second quarter, the core variables affecting liquidity are the Federal Reserve rate-cut timetable, the intensity of domestic measures to stabilize growth, and the external pressure of tighter liquidity as well as the domestic policy “bottoming-out” game. At the same time, the positive factors supporting the A-share outlook are fairly clear: domestic long-term industrial upgrading strategies and short-term stabilization policies form a combined force, with policy dividends continuing to be released; as the Middle East geopolitical conflict impact gradually weakens, market risk appetite is expected to recover; leading industry logic is clear, and main lines such as energy security and hard technology have support; regulators continue to optimize the market ecosystem, providing protection for stable operation of the A-share market.

Wang Li: Whether the Middle East geopolitical conflict eases and the quality of corporate performance in Q1—will determine investors’ willingness for capital to flow back into the market in the second quarter. On the one hand, sentiment indicators across the A-share market have already signaled bottoming-out. If the Middle East geopolitical conflict improves somewhat, capital is likely to form a consensus to buy and hold at the bottom. On the other hand, if Q1 earnings provide more clues about the level of business confidence to the market, capital may form an “I decide for myself” viewpoint, boosting willingness to allocate toward directions with high levels of business momentum.

Allocation: Structural rallies may continue

Shanghai Securities News: Please analyze which areas look favorable in the future based on fundamentals, sentiment, liquidity, and other factors.

Tang Xiaodong: Under the current market environment, we like four directions: AI applications, “anti-involution” beneficiary chains, defense and military-industrial sectors, and domestic-demand consumption.

In the AI field, fundamentals are strong. The number of calls to Chinese models has already exceeded that of the United States. Institutional holdings have a relatively large weight on the compute-power end, and the AI applications side still has greater growth space. The “anti-involution” policy is pushing price reversals in the lithium battery and solar PV industry chains; the earnings-recovery elasticity is strong in materials and midstream manufacturing links. Commercial aerospace and low-altitude equipment are expected to become new growth points. In domestic-demand consumption areas such as food and beverage, valuations are already at historical lows, offering left-side allocation value as we wait for a rebound in sentiment and business momentum for related sectors.

Li Zhan: From a fundamentals perspective, we are relatively more optimistic about AI industry chains such as compute power and applications, as well as high-end manufacturing. Equipment-upgrade policies continue to be rolled out, which benefits the performance of industrial machine tools and robotics. At the same time, setting aside 800 billion yuan of ultra-long-term special government bond funds for “two major projects” will drive development in related fields.

From a sentiment perspective, the A-share market is in a transition period between policy confidence and earnings validation. At present, the TMT sector has a relatively high share of trading value, but capital is starting to rotate away from high-valuation themes toward overseas industry chains such as ships and machinery that have earnings support, and toward cyclical sectors such as nonferrous metals and chemicals. This reflects an “anti-involution” pricing logic.

From a liquidity perspective, technology growth and resource plays benefit more. Since the beginning of this year, insurance funds and wealth-management funds have preferred industries with high dividends and stable cash flows, which is relatively favorable for sectors such as operators and electric power. Marginal improvement is even bigger for incremental capital from public and private fund institutions, which tend to prefer technology growth sectors—watch areas such as semiconductors and AI agent application platforms. Meanwhile, margin financing and securities lending capital has declined at the margin; lower market volatility will favor a trend-following rally.

In sum, at present it is appropriate to adopt a dumbbell strategy: hold high-dividend dividends such as electric power and operators as a core position on one end, while allocating to themes such as AI compute power, embodied intelligence, and the low-altitude economy on the other end. Also, in the second quarter, it is positive to focus actively on nonferrous metals and chemical sectors as their inventory cycle bottoms out.

Wei Fengchun: Currently, the market has two completely different investment logics. The key point of divergence centers on whether the persistently high energy prices are merely short-term external disruptions, or whether they are the decisive factor affecting the long-term trend. First, the world is entering a new technological cycle. Four main lines—AI, Tokens, energy, and robotics—will reshape a new order for the future world. Energy competition is an important prerequisite for industrial upgrading. The Middle East geopolitical conflict only changes the investment timing and strengthens structure; it has not changed the revolutionary technological trend. Second, high oil prices can trigger economic inflation, recession, and even stagflation, thereby bursting the AI bubble and ending the new cycle.

Overall, regardless of which logic the market follows, there is consensus that energy will become a global strategic resource, and hard assets have underlying allocation value. The Middle East geopolitical conflict has a boundary for easing, and the market is likely to rebuild consensus around this. In this context, investment should focus on more certain assets: firmly allocate to hard assets with safety attributes and rigid demand-supply characteristics such as energy and coal to build a safety cushion. At the same time, do not give up on technology growth. Focus on AI infrastructure, advanced compute power, and other “true growth” areas that have real technological barriers and strong earnings realization capacity. Stick to profitability as the anchor and follow the investment main line driven by the industrial cycle.

Wang Li: We are especially bullish on two directions: first, AI software and hardware, advanced manufacturing, and the go-global (overseas) chain. This area has suffered a large drop due to risk appetite, but fundamentals are themselves less affected by oil prices and the growth logic is solid. Second, sectors such as coal, electric power, new energy, and agricultural products. After the oil price middle level moves up, the direction of energy substitution and price transmission—this “price-rising chain”—will directly benefit.

A MACD golden cross signal has formed—these stocks have great upside momentum!

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