Policy support, clear main line, in-depth analysis of public funds: A-share second-quarter investment strategy

Tang Xiaodong, Li Zhan, Wei Fengchun, Wang Li

As we approach the second quarter, Shanghai Securities Journal interviewed Tang Xiaodong, Co-General Manager of the Macro Strategy Department at Southern Fund, Li Zhan, Chief Economist of the Research Department at China Merchants Fund, Wei Fengchun, Chief Economist at Chuangjin Hexin Fund, and Wang Li, Senior Macro Strategy Researcher at Great Wall Fund, to engage in an in-depth discussion on hot topics such as the main logic of A-shares in the coming period, policy measures, market contradictions, and investment directions.

Anchoring: The main logic of A-shares is established

Shanghai Securities Journal: In light of the 14th Five-Year Plan outline, which industries do you believe are likely to become the main focus of A-shares going forward, and why?

Tang Xiaodong: The main focus of A-shares will revolve around five major directions: first, self-controlled industrial foundation, focusing on key production tools such as industrial mother machines and basic software to address issues with industrial foundational capabilities; second, non-linear growth in frontier technology, paying attention to high-risk, high-potential areas such as controlled nuclear fusion and quantum technology, exploring “unmanned areas” in technology; third, core areas of new infrastructure, where computing networks and data infrastructure provide the foundation for industrial and AI development; fourth, efficient coordinated development of new energy, with investment shifting towards the stability of power grids, with ultra-high voltage and grid-type energy storage becoming key; fifth, expanding domestic demand to generate new consumption, focusing on the silver economy and child-friendly economy in the livelihood sector.

Li Zhan: In the upcoming period, the main logic of A-shares will revolve around the two core ideas of technological self-reliance and “anti-involution.” On one hand, integrated circuits, aerospace, biomedicine, and the low-altitude economy will be established as emerging pillar industries, while future industries such as quantum technology, embodied intelligence, 6G, and future energy will also receive key cultivation; on the other hand, industries such as automobiles, photovoltaics, lithium batteries, steel, cement, and chemicals are expected to bring about cyclical recovery through mergers and acquisitions.

Institutions generally adopt a “barbell strategy”: one end allocates to AI applications, semiconductors, robots, and other technological growth lines, focusing on leading companies with high R&D investment; the other end lays out leading companies in industries such as batteries and photovoltaic components that benefit from supply-side reforms, betting on profit recovery brought about by price rebounds. At the same time, investing in ETF indices and leading stock combinations helps to avoid the risks of volatility associated with a single track.

Wei Fengchun: The main focus of A-shares includes two directions: first, the hard technology track. The AI full industry chain, advanced manufacturing, and high-end equipment are core areas for cultivating new productive forces during the 14th Five-Year Plan, and are also a product of the transition from recovery to prosperity in the K-wave cycle, resonating with the expansion of the Juglar cycle. Accelerated technology implementation and increased capital expenditure, combined with significantly enhanced certainty of high growth in performance, together constitute the core main line for the revaluation of Chinese assets in this round. Second, the traditional industry value re-evaluation sector. Industries such as coal and steel benefit from the switch in inventory cycles and policy coordination, relying on the logic of “old chassis + new demand” to achieve value return in line with the upgrade pace of leading industries. These areas are indispensable supporting pillars in the process of forming leading industries and are important supplements to asset re-evaluation.

Wang Li: In the future, as the global AI industry trend continues to iterate and the penetration rate in various industries continues to rise, coupled with breakthroughs in key technologies and future industries in our country, upstream computing power that is self-controlled, represented by AI, various forward-looking applications downstream, as well as quality supporting infrastructure supply such as electricity and data centers, and going overseas, are expected to become a prominent investment main line.

Tuning: Policy releases positive signals

Shanghai Securities Journal: The government work report for 2026 sets an economic growth target of 4.5%—5%. How do you view the macro tuning?

Tang Xiaodong: The government work report for 2026 basically continues the policy tone of 2025, implementing a “more proactive fiscal policy” and “moderately loose monetary policy,” with stabilizing growth, strengthening technology, and promoting domestic demand still being this year’s key tasks. In addition, various factors such as the attractive valuation of A-shares, the unchanged regulatory guidance encouraging medium- and long-term capital to enter the market, and the large potential for household funds to enter the market in a low-interest rate environment suggest that A-shares are likely to continue a “slow bull” market.

Li Zhan: In 2026, macro policies will show a more proactive and effective distinctive feature. The range set for this year’s economic growth target reflects a pragmatic approach of “jumping high while maintaining a steady pace,” leaving room for structural adjustments. At the same time, fiscal policies are particularly prominent, including 1.3 trillion yuan in ultra-long-term special government bonds and 800 billion yuan in new policy-based financial instruments, forming a “quasi-fiscal” combination punch.

The A-share market is expected to welcome a long-term trend driven by “dual engines of capital and policy.” According to estimates, A-shares are expected to see nearly 1.5 trillion yuan in incremental capital in 2026, with approximately 934 billion yuan of insurance and wealth management funds forming the cornerstone of medium- and long-term funds, while public and private fund management will also become the biggest variable for marginal improvement. As domestic demand recovers and technology investment continues to increase, the A-share market will gradually reflect profit expectations after the second quarter, with the valuation center of the CSI 300 expected to rise.

Wei Fengchun: From the perspective of cyclical fluctuations and fiscal policies, the economic growth target set in the government work report is pragmatic and resilient, aligning with the demand for balanced total and structural adjustments during the transition period, reflecting a firm determination to stabilize growth. The fiscal policy direction focuses on addressing shortcomings, strengthening livelihoods, and promoting transformation, which works in synergy with moderately loose monetary policies, supporting short-term economic stability while laying out long-term high-quality development, releasing a strong positive signal from policies.

Overall, the certainty of policies will offset external uncertainties, and the A-share market is expected to rise steadily, but attention must be paid to the rhythm and focus on targets with strong performance realization capabilities.

Wang Li: Currently, the macroeconomic policy tuning emphasizes improving quality and efficiency, and breaking through reforms, reflecting confidence in economic resilience and high-quality development. Both broad and narrow fiscal policies remain high, showing a further direction of “stabilizing investment” in structure.

Positive signals will boost the A-share market from three aspects: first, policies continue to emphasize nominal economic growth, while the speed of nominal economic growth, as a key variable determining corporate profitability and microeconomic perception, is expected to become the main driving force for the upward trend in this year’s A-share market; second, ongoing emphasis on domestic demand and “anti-involution” on the supply side, with fiscal funds supporting the optimization and transformation of traditional industries, is expected to improve investment expectations for consumption and manufacturing; third, the deepening of capital market reforms, perfecting the mechanisms for medium- and long-term capital to enter the market, and widening venture capital exit channels will help enhance market liquidity.

Analysis: Bullish and bearish factors trigger short-term games

Shanghai Securities Journal: What factors have influenced the recent trends in the A-share market? What are the core variables affecting the market’s capital situation in the second quarter? What risk factors need to be taken seriously?

Tang Xiaodong: Recently, the A-share trend has mainly been influenced by factors such as geopolitical conflicts in the Middle East and the monetary policy orientation of the Federal Reserve. Looking ahead to the second quarter, the core variable in the capital situation is the evolution of the geopolitical landscape, as well as the performance realization of listed companies during the April performance verification period.

The positive factors supporting the market lie in the obvious resilience and stability advantages of the Chinese economy, which is conducive to attracting global capital to invest in the Chinese market. However, there are three major risks ahead: first, the long-tail risks of escalating war; second, rising oil prices may trigger global re-inflation, leading to a shift in monetary policy; third, rising energy prices have a crowding-out effect on the demand side that needs continuous tracking and response.

Li Zhan: Recently, the trend of the A-share market is the result of a three-way game between policy expectations, the technology industry cycle, and geopolitical risks. Looking ahead to the second quarter, the core variables affecting the capital situation include three points: first, the entry pace of insurance and wealth management funds; second, a recovery in public and private fund issuance, which will drive a dominant trend in technology growth; third, regarding foreign capital trends, it is expected that incremental northbound capital may exceed 100 billion yuan in 2026, while Hong Kong stocks remain the first choice for foreign investment.

Overall, the general public budget expenditure scale will reach 30 trillion yuan for the first time, and measures such as issuing 800 billion yuan in new policy-based financial instruments will effectively leverage social capital investment, while “anti-involution” policies promote expectations for PPI to return to positive. The trend of residents’ asset allocation shifting towards the stock market is clear, and multiple positive factors resonating will support the performance of A-shares in the future.

However, there may still be significant potential risks ahead, including the escalation of geopolitical conflicts in the Middle East pushing up oil prices, thereby limiting monetary policy space, and intensified global technology competition affecting industry chain expectations.

Wei Fengchun: From the perspective of macro drivers and internal-external linkages, the recent trend of A-shares is mainly influenced by three factors: first, geopolitical conflicts in the Middle East raise global risk premiums, and risk aversion sentiments are transmitted to A-shares, intensifying short-term market fluctuations; second, skyrocketing oil prices trigger global inflation concerns, combined with a contraction in expectations for Federal Reserve interest rate cuts, disrupting global liquidity and thus constraining the easing space for A-shares; third, A-shares themselves are in a cycle of adjustment and consolidation, with previous high valuations gradually returning as existing funds adjust their portfolios, further intensifying short-term market volatility.

Looking ahead to the second quarter, the core variables affecting the capital situation are the pace of Federal Reserve interest rate cuts, the implementation strength of domestic stability policies, as well as external tightening pressures and internal policy support dynamics. Meanwhile, the positive factors supporting the A-share market are quite clear: the domestic long-term industrial upgrade strategy aligns with short-term stability policies, and policy dividends continue to be released; the impact of geopolitical conflicts in the Middle East is gradually weakening, and market risk appetite is expected to recover; the logic of leading industries is clear, with energy security and hard technology as main lines providing support; regulatory authorities continue to optimize the market ecosystem, ensuring the stable operation of the A-share market.

Wang Li: Whether the geopolitical conflict in the Middle East eases and the quality of corporate Q1 earnings reports will determine the willingness of funds to flow back in the second quarter. On one hand, various sentiment indicators in the current A-share market have indicated bottom signals; if the geopolitical conflict in the Middle East improves, funds are likely to form a consensus for bottom-fishing; on the other hand, if the Q1 earnings reports provide more clues on prosperity, funds are likely to form a “my way” viewpoint, boosting willingness to allocate towards high-prosperity directions.

Layout: Structural trends may continue

Shanghai Securities Journal: Please analyze from the perspectives of fundamentals, sentiment, and capital, which areas you are optimistic about for future performance?

Tang Xiaodong: In the current market environment, I am optimistic about four major directions: AI applications, the anti-involution benefiting chain, military industry, and domestic demand consumption.

The fundamentals in the AI field are strong, with the number of calls to Chinese models exceeding those in the U.S., and institutions holding a significant proportion of computing power. The AI application side has greater growth potential; the “anti-involution” policies are driving price reversals in industries such as lithium batteries and photovoltaics, with significant profit recovery elasticity in materials and midstream manufacturing; commercial aerospace and low-altitude equipment are expected to become new growth points; the valuation of domestic consumption sectors such as food and beverages is at historical lows, providing value for left-side positioning, waiting for the prosperity of related sectors to turn around.

Li Zhan: From a fundamental perspective, I am relatively optimistic about the AI industry chain and high-end manufacturing related to computing power and applications. The ongoing release of equipment upgrade policies is favorable for the performance of industrial mother machines and robots; at the same time, the arrangement of 800 billion yuan in ultra-long-term special government bond funds for “two heavy” construction will drive development in related areas.

From a sentiment perspective, the A-share market is in a transition period between policy confidence and performance verification. Currently, the TMT sector occupies a high proportion of transactions, but funds are beginning to shift from high-valuation themes to industries with performance support such as shipbuilding, machinery, and other overseas industrial chains, as well as cyclicals like non-ferrous metals and chemicals, reflecting the “anti-involution” pricing logic.

From a capital perspective, technology growth and resource products are more favored: since the beginning of the year, insurance and wealth management funds have preferred industries with high dividends and stable cash flows, which is relatively favorable for operators and power sectors; the marginal improvement of incremental funds from public and private institutions is more significant, favoring technology growth sectors and focusing on fields such as semiconductors and AI intelligent applications; margin trading funds have decreased marginally, and reduced market volatility is beneficial for trend markets.

In summary, it is advisable to adopt a barbell strategy, holding high-dividend stocks such as power and operators as the base, while allocating towards themes like AI computing power, embodied intelligence, and low-altitude economy. At the same time, actively pay attention to the non-ferrous and chemical sectors where inventory cycles are bottoming out in the second quarter.

Wei Fengchun: Currently, the market presents two distinct investment logics, with the core divergence centered on whether high energy prices are merely a short-term external disturbance or a determining factor influencing the medium- to long-term trend: first, the global entry into a new technological cycle, with four main lines—AI, tokens, energy, and robotics—reshaping the new order of the future world, where energy competition is a crucial prerequisite for industrial upgrading; geopolitical conflicts in the Middle East only change investment rhythms and strengthen structure, without altering this revolutionary trend in technology; second, high oil prices can trigger economic inflation, recession, and even stagflation, which could burst the AI bubble and lead to the end of the new cycle.

Overall, regardless of which logic prevails, the market agrees on the view that energy has become a global strategic resource, and hard assets possess underlying allocation value. The geopolitical conflict in the Middle East has boundaries for easing, and the market will likely re-gather consensus. Against this backdrop, investments should focus on certainty assets, firmly laying out energy, coal, and other hard assets with safety attributes and supply-demand rigidity, building a solid safety net; at the same time, do not abandon the technology growth sector, focusing on AI infrastructure, advanced computing power, and other fields with real technological barriers and strong performance realization capabilities, adhering to profitability as the anchor and following the investment main line driven by industrial cycles.

Wang Li: I am particularly optimistic about two major directions: first, fields such as AI hardware and software, advanced manufacturing, and overseas chains, which have seen significant declines due to risk appetite, but the fundamentals themselves are less affected by oil prices, and the logic of prosperity is solid; second, sectors such as coal, electricity, new energy, and agricultural products, which will directly benefit from energy substitution and price transmission “price increase chain” direction after oil prices rise.