"Chinese Stock Market to Remain Bullish Next Year... Spotlight on AI Accelerators, ESS, and Pharmaceuticals"

Despite concerns about sluggish domestic demand, the Chinese stock market is expected to continue its bullish trend next year. Analysts anticipate strong corporate growth, with earnings per share (EPS) growth projected at 28%. Sectors to watch include artificial intelligence (AI) accelerators, energy storage systems (ESS), and pharmaceuticals.

Sung Yeonju, a researcher at Shin Young Securities, shared this outlook in the "2026 China Outlook" report titled "Chinese Stock Market: The Power of Optimism Despite Weak Domestic Demand? Price," released on November 26.

First, Sung pointed out that even though China’s economy has not been strong this year, the stock market has performed well. She explained, "It is not just a simple industrial momentum. Although the economy is weak, increased capital expenditures (Capex) in high-tech industries aligned with the global industrial cycle and rising exports are being reflected in corporate earnings."

She also assessed that the key to further gains next year will be whether China can escape deflation. Currently, China is showing signs of deflation, with the GDP deflator growth rate remaining negative since the fourth quarter of 2022. Sung cited oversupply in manufacturing and weak demand from local governments and households as the main reasons for this trend.

However, she also noted the possibility that supply-side policies such as the "Banneiquan" policy could lead to a rebound in producer prices. The core of the Banneiquan policy is to halt price-cutting competition among companies and adjust overproduction. She predicted, "There will be restructuring in mid- and downstream sectors such as solar power and electric vehicles."

In addition, Sung analyzed that a recovery in the real estate market and increased Capex demand in high-tech industries are expected to drive a positive turnaround in the Producer Price Index (PPI) in the second half of the year. As grounds for expecting a PPI rebound, she cited the positive turnaround in the leading indicator M1 growth rate and historical comparisons with the timing of PPI rebounds during supply-side policies led by upstream sectors in 2015.

Accordingly, Sung expects that 2026 will see clear corporate earnings momentum in the Chinese stock market. She estimated, "Based on the Shanghai Composite Index, net profit growth will exceed 10%, and EPS growth will reach 28%, indicating strong corporate growth." She also highlighted, "IT, materials, energy, pharmaceuticals, and real estate companies will see the largest increases in profit growth rates," and recommended focusing on sectors such as AI accelerators, ESS, and pharmaceuticals.

She further predicted, "With 2026 marking the first year of China’s 15th Five-Year Plan (2026-2030) and potentially the end of the US-China tariff war, the Chinese government will intentionally continue to expand investment in high-tech industries, with a particular focus on AI."

Major global investment banks (IBs) are also optimistic about the Chinese stock market in 2026. According to a compilation by the Shin Young Securities Research Center, UBS estimates that the MSCI China and Hong Kong Hang Seng Index will rise by 14% and 13%, respectively, citing improvements in corporate earnings as the key difference from this year. Goldman Sachs forecasts that, driven by net profit growth among Chinese listed companies, the Chinese stock market will achieve a 30% increase by 2027.