Western Securities: 4,000 points are expected to become the starting point of a long-term bull market, and A-shares are expected to usher in a 20-year "epic bull market."

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Targeting 4000 points: not a high point, but a starting point | Western Strategy Cao Liulong Team

Source: Liu Long Vision

Introduction: Since the outbreak of the US-Iran conflict in early March, oil prices have surged significantly. Investors worry that sustained high oil prices could trigger a stagflation similar to the 1970s, which might drag down China’s exports. Amid the shadow of overseas “stagflation trading,” A-shares have fallen sharply, with the Shanghai Composite Index dropping below the 120-day moving average. Investors fear the upward trend in A-shares has ended. However, we believe excessive concern about A-shares and China’s fundamentals is unnecessary—4000 points may just be the beginning of a long bull run, and now is the time to position four “bullish options.”

Core Views

Cross-border capital returning: the foundation of this A-share bull market remains intact

The essence of this round of A-share bull market is that RMB appreciation drives cross-border capital inflows, leading to a systemic “re-inflation” of domestic factor prices (PPI + CPI). In our November 9, 2025 report “Is the Feast Still Going?” we pointed out that the massive liquidity injection after the 2020 pandemic has driven a six-year “big bull” in global stock markets. However, the A-share bull faced a phase setback from 2022 to 2024: starting in 2022, the Federal Reserve aggressively raised interest rates, causing the US-China interest rate differential to invert and the RMB to depreciate, leading to capital outflows and deflation in domestic asset prices, including stocks. It wasn’t until September 2024, with the Fed cutting rates, narrowing the US-China interest rate gap, and RMB resuming appreciation, that cross-border capital began to accelerate back into China, driving systemic “re-inflation” of factor prices. Although geopolitical conflicts have caused some market volatility, the RMB appreciation trend remains unchanged, and the foundation of the A-share bull market driven by cross-border capital inflows remains solid.

Oil prices stay high: China’s export competitiveness further solidified

In our March 22, 2026 report “Kondratiev’s Opportunity: Catch-up Countries’ ‘Overtaking on Curves’,” we noted that sustained high oil prices will not reverse China’s export expansion but will instead further strengthen China’s global manufacturing competitive advantage—

(1) The success of Japan in the 1970s: the oil crisis helped Japan achieve “overtaking on curves.” As an energy-scarce “energy-saving economy,” Japan’s small-displacement cars gained a competitive edge, allowing auto exports to expand against the trend during oil price surges;

(2) China’s future export expansion path: developing into an “electricity economy” in an environment rich in coal but scarce in oil. Over the past decade or so, China has invested heavily in the new energy industry chain. With oil prices returning to high levels, China’s renewable energy exports are expected to accelerate. This strong export growth not only offsets the negative effects of stagflation but also forms the cornerstone of future A-share bull markets, transforming global energy security anxieties into prosperity for Chinese assets.

China’s industrialization “maturity period”: A-shares to bid farewell to volatility and possibly usher in a 20-year “epic bull market”

Our confidence in a long-term bull run in A-shares stems from insights into the core driver of this cycle—an “epic bull market” during the industrialization “maturity period.” In our August 31, 2025 report “Looking Toward New Highs,” we pointed out that the US and Japan entered their industrialization maturity phases around 1945 and 1970, respectively, experiencing a 20-year “epic bull market.” China entered its industrialization “maturity period” around 2018—

(1) Before 2018, China was in the “takeoff” phase: large national wealth accumulated from export earnings was used to strengthen industrial infrastructure, with capital flowing into infrastructure, real estate, and manufacturing sectors. The stock market remained volatile for a long time;

(2) Since 2018, China has entered the “maturity” phase: similar to the US after 1945 and Japan in the 1970s, China’s national wealth accumulated from strong export capacity is no longer mainly reinvested in the real economy but has entered the capital markets, helping A-shares break free from over two decades of volatility and begin a “legendary bull market.”

Waiting for Fed QE: opening space for domestic debt policies, China’s economy to return to prosperity by 2026

In our February 3, 2026 report “Wosh Shock: Has It Ended?” we noted that the US’s massive fiscal deficit requires continuous issuance of US debt. Facing the current US debt dilemma, Wosh, as the new Fed Chair, lacks the conditions to implement “rate cuts and balance sheet reduction,” otherwise risking a liquidity crisis. Specifically, rate cuts would lower short-term US debt yields, accelerating capital outflows, while US debt issuance would continue to expand, causing supply-demand imbalance and liquidity tightening. Conversely, if Wosh pushes for balance sheet reduction, dollar liquidity would tighten rapidly, potentially triggering a financial crisis.

In our March 22, 2026 report “Kondratiev’s Opportunity,” we pointed out that among the three priorities—financial system stability, employment, and inflation—the Fed’s top priority is financial stability > employment > inflation. Therefore, liquidity crises will force the Fed to loosen monetary policy, possibly even initiating QE. Once QE begins, the space for domestic QE to resolve debt issues will open up fully. As household balance sheets recover rapidly, China’s economy could return to the prosperity of 2019-2021, and A-shares will usher in a new core asset bull market.

Sector allocation: 4000 points may be the starting point of a long bull, positioning four “bullish options”

In this “epic” bull market driven by China’s industrialization “maturity period,” 4000 points may just be the beginning of a long-term bull. The eternal truth of a bull market is “eliminating undervaluation.” Therefore, we are confident in the investment opportunities of four “bullish options” in 2026, especially in sectors like liquor, real estate, and Hang Seng Tech, which have excellent upside potential and may become the most flexible sectors after Fed QE—

① Energy sector benefiting from rising oil prices (oil, chemicals, coal, new energy chain);
② Agriculture sector completing the last “value fill” in the commodities super cycle (agrochemicals, agricultural products);
③ Core Chinese consumer assets benefiting from cross-border capital inflows and Fed QE expectations (liquor, real estate);
④ Offshore assets benefiting from a weak dollar and China’s consumption recovery (Hang Seng Tech).

Risk warnings

Risks include unexpected escalation of geopolitical conflicts and disruptions to global energy supply chains, overseas stagflation pressures exceeding expectations, global demand shrinking, timing and intensity of Fed policy shifts, domestic macro policy implementation and economic recovery lagging, and increased volatility in global equity assets due to tightening liquidity.