Zheshang Securities Li Chao: Firmly bullish on A-shares and Hong Kong stocks in 2026, with the main theme being rising liquidity, focusing on two major strategies: technology and dividends

Li Chao, Chief Economist and Co-Director of the Research Institute at Zheshang Securities, shared his outlook on the macroeconomy and major asset classes for 2026 at an event hosted by Huaan Fund, themed "Setting Sail with Cloudy Sails to Cross the Vast Sea." Behind this theme is his belief that 2026 will still be a market driven by increasing liquidity and rising stocks, so everyone should pay close attention to the varieties that benefit from declining interest rates, namely the two major tracks of technology and dividends. Key Quotes: The main line of the entire market in 2026 is a market driven by increasing liquidity. 2026 will showcase a catch-up rally due to declining interest rates, with technology and dividends remaining the primary upward directions. The "national power," represented by the State Administration of Foreign Exchange, including the entry of long-term funds from enterprise annuities and occupational annuities, provides a very good foundation for the gradual slow bull process of the A-share market. The technology strategy favors high-risk appetite environments, while the dividend strategy prefers low-risk appetite. In other words, when geopolitical situations begin to confront, it is time to buy dividends; when cooperation occurs, it is time to buy technology. For bonds, the 10-year government bond yield is likely to fluctuate in the range of 1.5% to 2%. 1.75% is an important central point. A significant amount of capital investment is definitely needed in the area of new productive forces. I predict that starting from the first quarter of next year, the investment growth rate will show significant improvement. Regarding the stabilization of housing prices, everyone should pay close attention to the Ministry of Housing and Urban-Rural Development's "Good Housing" policy. The "Good Housing" policy has been promoted since the beginning of the year and has already achieved relatively good results. It can be observed that the delivery standards for "Good Housing" are much higher than those for previous houses. This batch of houses will inevitably become the best in the market, leading to a strong stabilization characteristic in the prices of new homes. From the perspective of fiscal policy, 2025 is an extraordinary state, while 2026 will gradually return to a state that balances counter-cyclical and cross-cyclical policies, with a slight possibility of a pullback in the deficit ratio. Using the first person, some content has been omitted. Four-Level Framework for Stock Market Decision-Making My topic is "Setting Sail with Cloudy Sails to Cross the Vast Sea." You can see that the last three characters all have the water radical, and I believe that the main line of the entire market in 2026 will still be a process of continuous development driven by increasing liquidity. First, let's take a look at the four-level decision-making framework. Over the past 6 to 7 years, whether we are investing in stocks, bonds, or even primary investments, many losses often stem from a lack of understanding or even disagreement with this framework. Currently, we are not using a simple decision-making framework based on economic growth, but rather a four-level decision-making framework, with G2 competition ranked first, social stability second, structural transformation third, and economic growth fourth. Therefore, from a long-term perspective, we need to get used to using this framework to analyze economic policies and asset prices. Starting from G2 competition, the recent meeting in South Korea has actually announced the end of the previous intense trade disputes. In the future, there may be three directions for evolution in this area: one is the technology direction (competition), one is the financial direction, and one is the geopolitical direction From the perspective of technology, the major financial backers behind the deep state forces in the United States are technology companies, so the probability of intensified confrontation in the technology sector in the future is clearly decreasing. The second aspect is geopolitics; based on the demands of relevant individuals for the Nobel Peace Prize, the probability of intensified geopolitical tensions, or even hot wars, is also very low. The third aspect is finance. In the past two years, if we take the delisting of Chinese concept stocks as a marker for the start of financial disputes, from the perspective of the other side, they may believe that a financial war has not actually begun. However, from our perspective, this game in the financial sector has indeed started. The comparison of the two countries' stock markets is actually a result of this financial game. The A-share market needs stability, so the "national power" represented by the China Investment Corporation plays a central role in stabilizing the market. At the same time, the long-term entry of insurance funds, including corporate annuities and occupational annuities, has provided a very good foundation for the gradual slow bull process of the A-share market. Structural Transformation Prioritizes Growth Rate The second level is social stability. Since we are currently pursuing high-quality development, we will not easily stimulate economic growth using traditional economic cycles. However, we must also ensure the foundation of social stability. If economic fluctuations increase, stimulus policies may become significantly larger, but currently, the probability of this happening in 2026 is still not very high. The third level is structural transformation. To put it simply, it means saying goodbye to real estate and embracing the transformation to manufacturing, which is not easy, but has achieved good results so far. The main focus is on new productive forces and the development of high technology. From this perspective, the bull market in the A-share market is actually dominated by technology as the main structural trend. The final level is economic growth. The topics everyone is studying—growth targets, overcapacity, price adjustments, etc.—actually belong to the fourth level. The underperformance of these indicators is, to some extent, the "cost" of structural transformation and the period of growing pains. Therefore, when we see these indicators deteriorating rapidly, some bottom-supporting policies will be formed. However, this policy may not necessarily lead to a systematic reversal; it can only be regarded as a thematic investment and is unlikely to create systematic investment opportunities. Technology and Dividends Remain the Main Upward Direction From the conclusion of major asset classes, I believe that the leading factor in the previous market trend in the equity market was the decline in interest rates, with loose monetary policy driving this wave of market performance. During the prolonged quantitative easing processes in the United States, Europe, and Japan, interest rates have continuously declined, driving a clear bull market in both stocks and bonds. However, the significant decline in the risk-free yield in China did not reflect such a bull market, which is actually due to the market's previous lack of confidence in the two important variables of G2 competition and structural transformation. Starting from 2025, confidence in these two factors will be significantly restored, so the A-share market will still experience a catch-up trend due to declining interest rates in 2026. In this trend, technology and dividends, which benefit from declining interest rates, will remain the main upward direction. Why does technology prefer falling interest rates? Because everyone can express longer-term stories and profits. Here, the current profit level is not taken into account. For dividends, since the bond coupon rates are already too low, the relatively high dividend ratio will also create investment opportunities as interest rates decline. However, these two categories have inconsistent preferences for risk appetite; technology prefers high risk appetite, while dividends prefer low risk appetite. If we take geopolitical disputes as the core variable, geopolitical tensions lead to buying dividends, while cooperation leads to buying technology, creating an intertwined structured continuous upward market. Bond rates ultimately depend on fundamentals and monetary policy For bonds, the 10-year government bond yield is likely to fluctuate in the range of 1.5 to 2. First, 1.75 is an important central point. The upward risk above this mainly comes from the stock market if it experiences sustained growth, which may lead to a diversion of liquidity, potentially resulting in a temporary upward movement. However, in the end, interest rates still depend on economic fundamentals and monetary policy, which determine the supply and demand relationship of funds, rather than solely relying on liquidity changes between stocks and bonds. The downward risk mainly focuses on whether there is risk transmission from individual real estate companies. Once credit risk begins to transmit, it is likely to prompt the central bank to ease liquidity to address this credit risk transmission. Therefore, this liquidity technical easing may create a low point for interest rates, which needs to be observed and tracked in the future. How to achieve a "good start" for the economy Next year's economic growth is likely to have a "good start." Why pursue a "good start"? Because once a "good start" is achieved, it can effectively promote structural transformation and high-quality development throughout the year. So how to achieve it? First, through industrial stability growth policies, I believe the market has not paid enough attention to industrial stability growth. Additionally, from the demand side, there is significant pressure on fixed asset investment growth, which may further drive investment efforts in the future. The focus of investment will mainly be in manufacturing and infrastructure. In terms of manufacturing, a significant amount of capital investment is required from the perspective of new productive forces. My judgment is that starting from the first quarter of next year, the investment growth rate will show significant improvement, as the central bank's 500 billion yuan of securities financial tools gradually land in manufacturing and infrastructure, leading to gradual improvement in this area. In terms of infrastructure, more attention should be paid to broad infrastructure, especially safety-related investments, such as water pipes and gas systems; these safety investments are necessary. The "Good House" policy has shown good effects In the real estate sector, real estate investment and sales are expected to remain under pressure. Everyone should pay close attention to the Ministry of Housing and Urban-Rural Development's "Good House" policy. It should be noted that the "Good House" policy has been promoted since the beginning of the year and has already achieved relatively good results. What is a "Good House"? First, the location must be good, and second, the construction must be good. Currently, special bonds have been used to buy back land in the suburbs, and no more land will be supplied there; instead, land in the core urban areas will be supplied to build fourth-generation buildings Everyone can observe that its delivery standards are much higher than those of previous houses, such as range hoods that can eliminate odors, floor drains that can remove smells, and added soundproofing measures for walls, floors, and windows, which also need to achieve constant temperature and humidity. Moreover, the usable area ratio needs to improve from 80% to over 95%. As a result, this batch of houses will inevitably become the best in the market. Recently, many first- and second-tier cities have seen the emergence of land kings and building kings, leading to a strong stabilization characteristic in the prices of new homes. "Three Engines" Beyond investment, from the perspective of consumption, the economy is roughly on par with the level of 2025. The trade-in program is likely to be maintained and may moderately expand its categories, as the original categories will create some degree of overdraft. Additionally, some policies need to be introduced to gradually relax restrictive purchasing policies, such as those for cars and housing. From the perspective of exports, I believe there is still hope for maintaining a relatively high growth rate. Despite trade frictions, the ODI (Outward Direct Investment, where Chinese enterprises actively go abroad) from non-U.S. countries is increasingly significant, which will drive exports since there is no complete industrial chain locally, thus requiring corresponding exports from China. From the perspective of prices, the current pursuit of high-quality development features, since there are no strong demand policies, it is certainly not possible to significantly increase prices at the moment. Of course, there are also reasons related to oil prices; from the U.S. perspective, there is a desire to control inflation, so under relatively low oil prices, it is difficult for the CPI to rise significantly. In the PPI, oil prices are certainly an important influencing variable. I believe the PPI will be around -2% for the year, corresponding to a deflation index of about -0.7%. For monetary policy, it still needs to start from its primary objectives, whether the monetary policy is moderately loose or stable, the ultimate goal is the most important. From the perspective of fiscal policy, after all, 2025 is an extraordinary state, and by 2026, it will gradually return to a state that balances counter-cyclical and cross-cyclical measures. Therefore, the scale of the deficit is rigid, but there is a possibility of a slight adjustment in the deficit rate, including special bonds. However, variables like special treasury bonds still need to maintain a certain level of stability. From the overall structure of fiscal policy, expenditures are quite diverse, especially with "three guarantees at the grassroots level" as an important protective direction. Additionally, under the orientation of increasing investment in technology and stabilizing industrial growth, structural transformation remains a dominant direction. In fact, this relates to the new productive forces reported by relevant departments, including the seventeen major tracks, eight strategic emerging industries, and nine future industries. The expected differences in the eight strategic emerging industries have been largely explored by the market, so the nine future industries are where all expectations lie. However, many of the nine future industries lack profitability, so they require an effective macro environment, which includes declining interest rates and increased risk appetite. Currently, 2025 meets one phase, and I still believe that 2026 will meet another phase Overseas Expansion of Balance Sheets Looking at the international situation, first focusing on the United States, which has simultaneously initiated a dual easing of fiscal and monetary policies. A series of easing actions raises concerns about whether they will lead to significant inflation issues in the U.S., which is a core concern for the market. Firstly, it is important to observe that within the "too big to fail" stimulus, there is actually very little consumption. From an investment perspective, it does not significantly stimulate real estate and infrastructure; rather, it mainly stimulates the return of technology and AI manufacturing. In this context, as efficiency further improves, overall prices remain relatively controllable. However, there are still potential risks. Looking ahead, whether from Venezuela or future Arctic development, there is consideration of control over oil prices, which may become a significant variable for the U.S. in managing inflation. Thus, the U.S. is also contemplating its inflation issues in the medium term. My preliminary judgment is that there will be two interest rate cuts. For the Eurozone, monetary policy is also shifting towards a supportive stance. Currently, the Eurozone is breaking through the deficit control of the Maastricht Treaty and has begun to initiate some expansion, raising concerns about debt stability. Positive Outlook for A-shares and H-shares Finally, let's summarize the major asset classes. Firstly, we remain bullish on stocks as an asset class; globally, we are relatively optimistic about stock assets. Of course, there are discussions about the potential for an AI bubble, but we currently believe it is not a core issue. Despite these concerns, I often ponder whether future interest rate hikes will burst this bubble. I tend to think the probability is low; it is more likely that some technical dilemmas or sudden changes in technological routes will create impacts. We need to observe the systemic bubble's effects. From the current perspective, the A-share market is firmly bullish for 2026, supported by the influx of medium to long-term funds, confidence restoration, and previous interest rate declines. The main driving factor for the A-share market's major trends is the decline in interest rates. Secondly, we are also optimistic about the Hong Kong stock market, as we expect the overall return of Chinese capital. Currently, the Hong Kong stock market still presents trend opportunities. Low Probability of Negative Factors for Gold in 2026 For commodity assets, there is support against internal competition. However, we still need to consider geopolitical factors, so there is still upward price momentum, with optimism for copper, rare earths, tungsten, and other varieties. Additionally, gold and silver as asset classes are gradually detaching from fundamentals, making it increasingly difficult for ordinary investors. Firstly, historically, the U.S. dollar and gold have had a long-term negative correlation; as long as the dollar is accurately assessed, gold can certainly be invested in correctly. However, this driving logic has now failed. In reality, the increase is still driven by central banks around the world accumulating gold. The World Gold Council has conducted surveys to consider its potential risks. I have also contemplated four major risks. The first major risk is actually a financial crisis. The common understanding is that if a financial crisis occurs, gold should continue to rise, right? However, in the current natural state, everyone is actually unable to sell; there is no liquidity. If a crisis occurs, gold will definitely be a primary object of sale because it has the best liquidity and the highest profits, thus becoming a target for selling The second point is the restructuring of the American energy system. Currently, the trend of de-dollarization stems from a lack of trust in the US dollar and US Treasury bonds. However, if the Middle East, Africa, and even the Arctic are controlled by them, at that time, the US dollar and US Treasury bonds will have strong debt characteristics, supported by energy, and gold may start to decline. The third point is when robots are widely applied in production and life. Bezos recently predicted that by around 2035 to 2045, robots will be widely used in production and life, which will also elevate the overall factor productivity in the US. On a macro level, this is the case. On a micro level, as wealth creation increases, the country will pay more taxes, and once the debt is repaid, gold will also start to decline. The last area of research is artificial gold. Controlled nuclear fusion can turn mercury into gold, and once artificial gold is realized, gold may also decline. However, this is more difficult, even more so than robots, so currently we can only analyze these bearish factors, but it seems that the probability of this occurring by 2026 is not particularly high. Silver, as a by-product of gold, has relatively greater elasticity, but this variety is smaller, so everyone should track the holdings of leading silver institutions to follow its upward opportunities. 50% Gold, 50% Technology Everyone knows that China's recent artificial intelligence + document actually emphasizes breakthroughs from 0 to 1, mainly stemming from the thoughts of Silicon Valley's first entrepreneurial giant, Peter Thiel. There is a very famous book called "Zero to One," and by borrowing his ideas, I find that all behaviors can be compared between 0 to 1 and 1 to N. For example, financial instruments: VC belongs to 0 to 1, while PE, secondary market stocks, bonds, and credit belong to 1 to N. The nine major future industries belong to 0 to 1, while strategic emerging industries and traditional economies belong to 1 to N. Those who dare to innovate and take risks belong to 0 to 1, while those who are good at business models and improving cost-effectiveness belong to 1 to N. Although there is uncertainty in technological innovation breakthroughs, high-IQ and hardworking entrepreneurs are diligently exploring here, and open-source has given birth to a group of great inventors. Technological development has nonlinear characteristics, and a large amount of capital is embracing and investing in the main scientists. In these two major evolutionary processes, we will find long-term investment opportunities in technology stocks and gold. Therefore, I believe there is a relatively simple allocation method: aside from liquidity issues during financial crises, it should yield positive returns every year, which is 50% allocated to gold and 50% allocated to technology stocks. Risk Warning and Disclaimer The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not consider individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at one's own risk