CITIC SEC: The overall asset environment may show features of marginal easing liquidity and moderate economic recovery in 2026. Recommended investments include commodities, stocks, and bonds.

CITIC SEC released a research report stating that the asset environment in 2026 may exhibit characteristics of marginal liquidity easing and moderate economic recovery. They recommend commodities > stocks > bonds. Regarding equities, they predict a 5%-10% full-year increase for the Wande full A in 2026; Hong Kong stocks are expected to experience a rebound in performance and a second round of valuation recovery, under a supportive background of Davis double-hit market. In the mid-term election year in the United States, under the backdrop of "fiscal + monetary" dual easing, it is expected that the momentum of fundamental growth will continue. Regarding bonds, CITIC SEC forecasts that the annual operating range of the 10-year treasury bond yield in China will be 1.5%-1.8%, with a gradual decline followed by an increase; the 10-year US treasury bond yield is expected to fluctuate within the range of 3.9%-4.3%. In terms of commodities, the supply and demand situation in the oil market is transitioning from surplus to balance, with Brent crude oil expected to fluctuate between $58-70/barrel throughout the year; gold is expected to continue its strong performance under the support of loose liquidity and geopolitical risks, with a possibility to reach $5000/ounce; copper, supported by supply constraints and driven by electricity demand, is expected to rise to an average price of $12000/ton. On the exchange rate front, the Renminbi may enter a mild appreciation cycle, and the central pivot of the US dollar to Renminbi exchange rate is expected to gradually approach 6.8. Key points from CITIC SEC include: A-shares: Predicting a 5%-10% rise for the Wande full A. In terms of corporate profits, it is expected that the net profit of listed companies will continue to improve in 2026, with a predicted full-year growth rate of 4.8%. As the CPI and PPI in 2026 rebound, the pressure of price factors on the profits of listed companies is expected to gradually ease season by season. With the gradual intensification and implementation of domestic demand policies, the ROE of industries related to domestic demand is expected to stabilize and rise, and industries with overseas revenue exceeding 20% are likely to continue the upward trend of ROE. On the valuation side, the rotation of structural opportunities may become the norm in the market, and at the index level, a 'low volatility slow bull' market is expected to emerge. Institutional investors, fixed income+, and private equity, representing absolute return type funds, are likely to be the main source of incremental funds. In terms of industries, it is recommended to focus on three key themes: resource/traditional manufacturing industry quality upgrading, Chinese enterprises going global and globalization, and AI further expanding commercial applications. In addition, although industries with exposure to domestic demand may not be as optimistic as those with external demand exposure, if there is unexpectedly strong recovery, the valuation elasticity is not insignificant; in an optimistic scenario, the massive domestic demand market may undergo systematic fundamental changes under unexpectedly strong policy stimulus, leading to a rise in market risk appetite, with valuation potentially expanding by around 10%. In a cautious assumption, the overall valuation lift space of the index is limited, the overall market risk appetite and trading enthusiasm weaken, but with continued inflows of funds such as institutional investors and the 'national team' support, the probability of a major decline is not high. Hong Kong stocks: Expected to usher in a rally with earnings bottoming out and the second round of valuation recovery. Under the catalysis of DeepSeek, Hong Kong stocks experienced the first round of valuation recovery in 2025. However, Hong Kong stocks are still undervalued compared to other major markets globally, with the dynamic PE ratio of the Hang Seng Index being only 11.3 times, while the ERP is as high as 5.5%. In terms of earnings, CITIC SEC estimates that the net profit of the Hang Seng Index and the Hang Seng Technology in 2026E is expected to increase by 6.7% and 24.3% respectively. Considering the high probability of "fiscal + monetary" dual easing in the mid-term election year in the United States, and Japan and Germany are also expected to increase fiscal spending, as well as China enhancing policies at the beginning of the "Fifteenth Five-Year Plan", the global macroeconomic environment will be favorable to the performance of Hong Kong stocks. With the implementation of domestic policies to combat internal competition and the advancement of AI commercialization, the improvement in the macro environment will also be reflected in the performance of Hong Kong listed companies. On the liquidity side, there may be marginal easing in Sino-US relations in 2026, driving the return of actively managed foreign capital. Domestic individual investors and pension funds are also expected to continue to increase their allocation to Hong Kong stocks through ETF products. Combining policy catalysts, improvement in fundamentals, and continuous inflow of funds, CITIC SEC believes that Hong Kong stocks will usher in a second round of valuation recovery in 2026, with the dynamic PE ratios of the Hang Seng Index and the Hang Seng Technology expected to expand by 5% and 10% respectively. The rhythm for 2026 is expected to be stable first and then rise: look at the two sessions policies at the beginning of the year, mid-year focus on progress in Sino-US relations and the return of foreign funds, and end of the year focus on earnings realization. It is recommended to pay attention to cloud computing/AI applications, CXO, industrial metal precious metals, paper, and aviation sectors. US Stocks: The dual easing of "fiscal + monetary" in the mid-term election year, with the continuation of fundamental growth momentum. In terms of macro policies, the Federal Reserve is expected to continue to cut interest rates in 2026, and may even restart QE to alleviate the upward pressure on long-term interest rates. The fiscal expansion effects of OBBBA will be released in 2026, supporting consumer spending and employment in the United States. Additionally, the expected privatization of the "two houses" is expected to bring in about $240 billion in non-tax revenue, easing the pressure on the budget deficit. Looking at fundamentals, the net profit growth rates of the S&P 500, Nasdaq 100, and MAG 8 are expected to increase to 15.6%, 20.0%, and 24.5% respectively in 2026, providing upward momentum for US stocks. Furthermore, based on the healthy balance sheets and cash flows of US hyperscalers, the likelihood of the AI bubble bursting in 2026 is considered low. However, with the major US stock indices currently at historically high levels, the probability of further valuation expansion next year is low. In terms of market liquidity, the rate cuts and tax reductions are expected to boost share buybacks by companies, and the high balance of $7.7 trillion in money market funds will also become an important source of incremental funds for US stocks. It is expected that US stocks will show a gradual uptrend next year, but caution is advised, especially in the first half of the year, as Jerome Powell, in his final months as head of the Federal Reserve, may overlook potential risks to the real economy and financial system in the name of "central bank independence". It is recommended to focus on technology, steel, aluminum, copper, energy infrastructure (especially nuclear power), defense, and internet diagnostics. Chinese Bonds: The 10-year Chinese government bond yield range for 2026 is expected to be 1.5%-1.8%, with a pattern of declining first and then rising. Compared to the operating range of 1.6%-1.9% for Chinese 10-year government bond yields in 2025, it is estimated that the central yield of 10-year bonds in 2026 may drop by 10 basis points, while maintaining a fluctuation space of about 30 basis points. On the one hand, the Central Economic Work Conference continues to adopt a moderately loose monetary policy stance, with an expected 10 basis point cut in policy rates still possible. Combined with the People's Bank of China's emphasis on maintaining a reasonable relationship between interest rates, it is expected that the downward shift in the central yield of 10-year government bonds in 2026 will be broadly consistent with the adjustment in policy rates. On the other hand, interest rate bonds are expected to maintain a pattern of "low rates + high volatility", with fluctuations similar to 2025. Changes in the operations of the central bank's bond transactions in 2025, the seesaw effect of stocks and bonds, and significant regulatory uncertainties have significantly amplified interest rate fluctuations. Looking ahead to 2026, despite the continuation of loose policy stance, the pace of the implementation of reserve requirement cuts and rate cuts remains uncertain, and disruptive factors have not completely dissipated. It is expected that the 10-year government bond yield will still remain within a fluctuation range of about 30 basis points. In terms of operating rhythm, interest rates may exhibit a "two-stage" pattern: from the beginning of the year to the first half of the year, the anticipated implementation of reserve requirement cuts and rate cuts is expected to drive interest rates downwards; in the second half of the year, with rising inflation providing support for nominal growth, the gradual winding down of local government debt, and an improvement in the conditions for credit expansion, interest rates may face upward pressure in stages after the middle of the year. US Treasury Bonds: The expected operating range for the 10-year US Treasury bond yield in 2026 may be 3.9%-4.3% for the full year. The GDP growth rate in the United States in the fourth quarter of 2025 is expected to have slowed significantly. The US economy is expected to gradually recover in the background of the Federal Reserve's interest rate cuts in the coming year, with a projected real GDP growth of 1.9% for the full year. With further interest rate cuts by the Federal Reserve and the stimulating effects of the "Build Back Better" plan on consumer spending starting to show, consumer spending in the United States may see some improvement and moderate growth next year. Private investments in the US are expected to stabilize and recover, supported by investments in AI and the momentum from interest rate cuts. In terms of inflation pressures faced by the United States, as the effective tax rate under the Trump administration's tariff policy is substantially reduced, the impact of tariffs on inflation is expected to gradually fade next year. Leading indicators of inflation and inflation indices currently show that future inflation pressures in the United States may be manageable, with total CPI in the United States expected to be around 2.7% next year. Federal Reserve Chair Jerome Powell's term ends in May next year, and the next Federal Reserve Chair is expected to be chosen between Hassett and Wach. Considering that the decision-making of the Federal Reserve on interest rate cuts involves the votes of 12 committee members, the internal division between hawkish and dovish members is intensifying. It remains to be seen how the next Federal Reserve Chair will exert control over the internal dynamics of the Federal Reserve. It is expected that the Federal Reserve will cut interest rates by a total of 50 basis points next year. If Hassett becomes the next Federal Reserve Chair, there may be a slightly stronger dovish bias compared to Wach. Considering the gradual economic recovery and manageable inflation pressures in the United States next year, the Federal Reserve still has room to cut interest rates by around 50 basis points next year. Therefore, it is expected that short-term US bond rates will gradually decline in line with policy rates next year, with the 3-month and 1-year US bond rates expected to range from 3.0%-3.6% and 3.1%-3.6% respectively for the full year. Additionally, with the tariff ruling under the International Emergency Economic Powers Act still pending, concerns over the US fiscal deficit are expected to persist, with the 10-year US Treasury bond yield likely to fluctuate within a range of 3.9%-4.3% for the full year. Exchange Rate: The Renminbi may enter a mild appreciation cycle, with the central exchange rate expected to gradually approach 6.8 in 2026. Looking ahead to 2026, with the narrowing of the interest rate differential between China and the United States, accelerated capital repatriation by enterprises, and guidance from the central bank, CITIC SEC believes the US dollar to Renminbi exchange rate is expected to appreciate gradually to 6.8. Firstly, it is expected that the rate cuts by the Federal Reserve will exceed those in China, leading to a further narrowing of the interest rate differential between China and the United States. On the one hand, under the baseline scenario, it is expected that the Federal Reserve will cut interest rates by a total of 50 basis points next year, while it is also expected that the People's Bank of China will cut interest rates by 10 basis points to address the issue of insufficient effective demand domestically. Secondly, it is estimated that Chinese export companies have accumulated around $1 trillion since 2022, and with expectations of Renminbi appreciation, this capital may accelerate repatriation and form a positive cycle of "exchange rate appreciation - reversal of expectations - increased repatriation - exchange rate appreciation". Thirdly, the central bank's exchange rate management mode may shift from preventing depreciation to promoting appreciation. In the period from the second half of 2023 to the first half of 2025, when the exchange rate ran between 7.2-7.3, there was significant pressure for depreciation, leading the central bank to use counter-cyclical factors for control. However, starting from the second half of 2025, as the Renminbi exchange rate broke through 7.2 and 7.1, and the central parity rate continued to guide towards appreciation, it began to show certain upward trends. This trend may continue into the next year, with a high likelihood of the central parity leading the way, followed by onshore and offshore rates catching up. Crude Oil: The oversupply in the second half of 2026 is expected to shift to balance, with Brent crude oil prices oscillating between $58-70/barrel for the full year. Incremental demand for oil will come from the United States, India, and others, while Chinese demand is expected to remain stable. Global trade tensions and reshuffling may continue to pressure economies of countries dependent on stock demand. On the supply side, OPEC+'s remaining production capacity is no longer sufficient, leading to a slowdown in production increases. The growth in oil supply will mainly come from the United States, South America, and other regions, but the drop in oil prices has already triggered cost challenges for North American shale oil. With pressure on Chinese demand, oversupply may still exist in the first half of the year, leading CITIC SEC to believe that Brent crude oil may fluctuate between $58-65/barrel at the lower end during the first half of the year; in the second half of the year, as demand increases following US interest rate cuts, the balance between supply and demand will gradually shift towards equilibrium, potentially driving Brent crude oil prices to a more positive tone in 2026, with oscillations rising to $65-70/barrel. Gold: With expectations of loose liquidity, gold prices are expected to continue their upward trend, possibly hitting $5000/ounce in 2026. Gold prices in 2026 are expected to continue benefiting from the loose liquidity atmosphere brought about by Federal Reserve interest rate cuts, with global gold ETF inflows serving as important buying support for gold. Potential geopolitical risks and the safe-haven demand triggered by trade conflicts will continue to support gold prices, while long-term trends such as de-dollarization and central bank gold purchases provide a solid foundation for gold price increases, with 2026 expected to see new highs in gold prices. However, considering the significant increase in gold prices in 2025 and the partial realization of the above factors in gold prices, it is expected that the price increase in 2026 may narrow to 10%-15%, with the possibility of hitting $5000/ounce for the full year. Copper: The supply-demand gap is expected to widen in 2026, with the average price of copper rising to $12000/ton for the full year. Supply disruptions at the mining end are expected to remain high in 2026, and potential production cuts in the smelting sector are exacerbating supply shortages, with global refined copper production expected to increase by only 1.1% in 2026. Demand will continue to benefit from investments in the electricity industry driven by rapid AI development and inventory hoarding in the United States, with demand expected to grow by 2.1% in 2026; the supply-demand gap for copper may widen to 450,000 tons, resulting in a stronger support for copper prices under the continued loose liquidity environment. The average price of copper is expected to rise by 20% to $12000/ton in 2026. Risk factors: Unexpected disturbances in Federal Reserve policy; escalation of global geopolitical and trade conflicts; Chinese macroeconomic policy action falling short of expectations.