Li Xunlei: What are the "expectation gaps" worth paying attention to in the capital market in 2026?

The east wind is strong, and spring is in full view. In 2025, the A-share market emerged from three years of adjustment and entered a recovery trend. The Shanghai Composite Index started from the yearly low and once broke through the 4000-point mark in the second half of the year, with a full-year increase of approximately 18.41%. The Sci-Tech Innovation Board and the ChiNext Index recorded even higher increases of 46.30% and 49.57% respectively. The uniqueness of this recovery trend lies in the fact that the revaluation driving force is not profit improvement or liquidity flooding, but a profound change in risk preference at the national institutional level. At the beginning of 2026, the A-share market remains strong, and the east wind is blowing. What "expectation gaps" may still exist in the capital market? Based on policy logic deduction and market game analysis, this article attempts to speculate by thinking outside the box. Speculation 1 - US-China Relations: Trump's "political self-rescue" may intensify the "rise in the East and fall in the West" trend, with two easing windows in sight. 2026 is a crucial year of the midterm elections in the United States. According to multiple polls at the end of 2025, the support rate for the Trump administration has dropped to the "danger zone" of 36%-41%, and the tolerance of the population to living costs and prices has reached its limit. Under the pressure of the midterm elections, Trump's core motive may shift from "governing the country" to "political self-rescue". To stabilize the support base, Trump may adopt an extreme "anti-order" strategy. Internally, he may incite social divisions by creating radical topics on immigration, ethnicity, and welfare systems to steer internal conflicts towards specific groups; externally, he may frequently use tariff tools and exert extreme pressure on Ukraine, Europe, and even Latin America. This strategy can consolidate his loyal support base in the short term, but the cost is a further reduction of the international credit of the United States. The global capital's expectation of the "order provided by the United States" has decreased, reinforcing the long-term narrative of "rise in the East and fall in the West". This is the underlying logic of the revaluation of A-shares in 2025 and the core support that will continue in 2026. 2026 needs to focus on two easing windows: first, if there is high-level mutual visits at the beginning of the year (including Trump visiting China or an advanced signal of a visit from the U.S. Secretary of State), the risk preference may be repaired in advance; second, as the midterm elections approach in September, the United States may need to make "real compromises" on trade orders, which could lead to a second easing in US-China relations. The months of May and June, in the middle, are more likely to be a "show of strength towards China" during the election period, and the volatility may intensify. In terms of asset mapping, the trades during the easing windows will lean more towards valuation repair: A-shares in technology, Hong Kong equities in the internet sector, and RMB assets in general will benefit; defensive measures during the pressured phase will focus more on supply security and strategic resources: military industry, essential materials, gold, and high dividend stocks will provide relatively stable returns. Speculation 2 - Fed's Easing Path: Speculating expectations at the beginning of the year, the third quarter may bring an overperforming interest rate cut "window". The term of Federal Reserve Chairman Powell will end in May 2026, and the nomination of a new chairman will be the most crucial rhythm change of the year. First Phase: Speculation on the nomination (January-February). Trump is expected to announce a close ally (such as "Two Kevins" - Hassett or Warsh) as the nominee early in 2026. The market will initially bet on the "policy style" - even if the interest rates do not change, the risk assets will move based on the expectation of changes, which will trigger the first wave of speculation on "aggressive rate cuts". Valuation recovery of high elasticity assets will start earlier. Second Phase: Interim power vacuum (March-June). With the power transition, it is difficult for a substantial policy shift to occur before the second quarter. The Federal Reserve is more likely to maintain a "wait and see" stance until before the second quarter. If Powell continues to maintain the marginal market rates still, or if the rate cut in March does not meet expectations, the disparity between market expectations and reality will lead to volatility, indicating a risk period to watch out for in the year. Third Phase: Substantive easing (July-September). As the new chairman takes office, if there is a weakening marginal inflation and employment, the Federal Reserve might cut rates once as a "compensatory" measure to offset the drag on the manufacturing sector caused by high rates. This is a true "easing window", leading to a systemic improvement in global financial conditions. It is noteworthy that domestic policies usually do not significantly precede the Federal Reserve. During the key window of "rise in the East and fall in the West", the RMB exchange rate must remain relatively strong to maintain the pricing benchmark status of national credit assets. If external conditions remain tight, the dollar remains strong, the domestic sector is more likely to rely on "structural tools and capital market policies" to support, rather than stimulate through comprehensive rate cuts. Conversely, once the Federal Reserve undergoes a substantive shift after the third quarter, leading to improvements in external financial conditions, the space for domestic total policy will clearly open up, creating a synergy that ignites the second half of the year trend. Speculation 3 - Total Policy: Fiscal strength is marginally converging, with the RMB exchange rate holding steady but rising, and the degree of monetary easing is limited. In 2026, the fiscal deficit rate may further increase, but fiscal strength may see a "marginal convergence", with the core conflict residing in the gap between fiscal revenue pressure and rigid expenditures. However, this expansion will not just focus on traditional inclusive infrastructure construction; it will be more targeted towards strategic "short board" areas and mitigating the risk of local accumulated debt. Domestic monetary policy will face a historical "double constraint": on the one hand, it will need to cooperate with fiscal expansion to maintain liquidity; on the other hand, during the crucial window of the "rise in the East and fall in the West", the RMB exchange rate may remain relatively strong to maintain the pricing benchmark status of national credit assets. Therefore, monetary policy is unlikely to undergo an unexpected "flood", but rather manifest more as a situation of "rate reduction, stable exchange rate, with ongoing credit contraction". In terms of asset allocation, two key determinants emerge from this macro combination: first, there is limited space for interest rate declines; the bond market will be more about stability than a bullish trend; second, the primary driver of the equity market will most likely come from "risk preference and structurally vibrant industries" and not from "comprehensive credit expansion". Consequently, during a phase of relatively weak total policy and pressure on fundamentals, capital market policy may become more proactive, and stricter capital market policies will be more favorable for A-shares. The rhythm of the A-share market in 2026 under the deduction of policy rhythms may rotate faster than in 2025, with high valuation assets likely to depend more on the drive towards external liquidity improvement. Speculation 4 - Expectation Management: A-shares strongly supported by capital market policies, while Hong Kong stocks boosted by economic policies. In the fourth quarter of 2025, the A-share market and the Hong Kong stock market showed significant differentiation. This difference was quite clear. If external conditions remain tight in 2026, the government's realistic lever will be expectation management in the capital market. This will mainly involve mid- to long-term fund anchoring, tightening of IPO schedules, and a normalization of stock reduction policies, establishing a "healthy" slow bull run framework. During the "vacuum period" of total policy, the management's "care" of the capital market may be more directly reflected through the funding aspect. Mid- to long-term funds will anchor through means such as increasing holdings of CSI 500/1000 ETFs, establishing a "policy base." Additionally, to alleviate market selling pressure, IPO reviews will remain extremely stringent, and the policies regulating stock reductions will be long-term. This environment of "strict entry and exit" has practically created a premium for funding in the A-share investment sector. During this stage, A-shares will often be relatively stronger compared to Hong Kong stocks: the increase in mid- to long-term funds will primarily flow into the A-share market; additionally, tightened IPO regulations may divert some financing needs towards Hong Kong stocks, placing marginal pressure on the latter. Given that Hong Kong stocks do not directly benefit from this type of administrative policy in the capital market, and may be under pressure due to the funding demands flowing out from A-shares, the performance of A-shares in the first half of the year may demonstrate "policy resilience". However, by entering the third quarter, if the Federal Reserve enters a rate-cutting channel, the dollar weakens, and global risk appetite improves, domestic policies may shift from "sustaining the market" to "supporting the economy." At this point, the weight of the total policy will rise, and the recovery and demands of credit will begin to play a part in pricing. At the same time, regulations strengthening the "reverse internal rolling" of Internet platforms will increase. The real risk of these platform giants lies not in their AI capabilities but in the price wars of their traditional businesses. Once regulatory efforts to counter internal competition intensify, the earnings of these tech giants will become more stable. With the shifting logic towards forceful total policies and resonating fundamentals in the third quarter, the driving force will switch from "capital policy" to "fundamental improvement". At this stage, the resilience of the Hong Kong stock market will be more pronounced: it is more sensitive to external liquidity and has a multi-faceted boost from "cash flow, buybacks, dividends, and AI applications". Speculation 5 - Household Fund Inflow: The pace of household fund inflow may struggle to accelerate. Despite household deposits reaching historical highs, the market expects a strong shift of "deposit migration", but the negative feedback of wealth effect and the behavioural psychology of defensive savings reversal have significant lag. In 2026, the behavioural logic of household fund inflow will undergo a systemic reconstruction: transitioning from previous "concentrated entry" methods to "gradual allocation-oriented incremental increase". The long-term fund "migration" that the market anticipates will gradually manifest as a slow incremental entry strategy. The reasons behind this "slow entry" are as follows: firstly, with real estate being the largest asset for households, the stabilization process of property prices is still lengthy, and the wealth effect brought by real estate has significantly diminished. Individuals will prioritize either enhancing liquidity or repaying debt; secondly, the expectation of income certainty as a result of interior enterprise "cost-cutting efficiency" may instigate a cautious attitude towards expected income among households; once funds exit the banks, their preference will be for stable instruments such as high dividend stocks, government bonds, gold, and ETFs with low volatility; thirdly, the net value fluctuations of recent years have affected the trust of retail investors, and the "institutional transformation" of retail funds may need to undergo a confidence rebuilding period. Japanese experience has shown that large-scale entry of household funds into the market requires a "systemic dividend" and a "reliable profit-making effect". Even when the stock market surged by 130% in the 2003-2007 years despite the burst of the bubble in the 1990s, individual investors continued to net outflow 15-18 trillion yen. It was only in 2014 that, with the expansion of NISA and the improvement of the enterprise ROE, households significantly increased their equity allocation. This "slow entry" actually provides the market with a long-term slow bull support, and the focus of the allocation should be on monitoring the changing preferences of young people in consumption. Risk Warning: Trump's policies may become excessively aggressive leading to worsened US-China relations; a less-than-expected monetary policy switch after the Federal Reserve transition; total policy implementation slower than anticipated; the pace of household fund inflow slower than expected; AI industry business prospects less optimistic than expected; and unexpected escalation of geopolitical conflicts. This article was originally published on the WeChat public account "Li Xunlei Finance and Investment." GMTEight Editor: Chen Yufeng.