As the year draws to a close and a new one begins, numerous investment institutions have been releasing their strategic reports for 2026. The veteran private equity firm Kuanyuan Asset recently publicly issued its "Letter to Investors," reviewing its investments in 2025 and outlining its investment strategy and anticipated market opportunities for 2026.
Data shows that Kuanyuan Asset was established in 2014 and has over 11 years of consecutive performance history, having won awards such as the Golden Bull and Golden Sunshine multiple times.
Its long-term returns have consistently led the major market indices, although its performance over the past year has been less stellar compared to funds heavily concentrated in AI technology stocks.
The company's founder and core investor is Xu Jingde, who hails from the proprietary investment department of Industrial Securities.
Those familiar with the investment circle may know that the proprietary desk at Industrial Securities has produced several highly skilled investment experts, such as Yang Dong of Ningquan Asset and Yan Keyi of Dapu Asset.
Xu Jingde is no exception and has inherited the low-key, steady style characteristic of the Industrial Securities proprietary desk, with his investment acumen being well-regarded within the industry.
In 2025, the Shanghai Composite Index rose by 18.4%, the CSI 300 Index gained 17.7%, the Shenzhen Component Index increased by 29.9%, and the Hang Seng Index climbed 27.8%.
Looking at sector gains, non-ferrous metals led with 94.7%, followed by communications at 84.7%, electronics at 47.9%, power equipment at 41.8%, and machinery equipment at 41.7%.
On the downside, food and beverage fell by 9.7%, and coal declined by 5.3%.
This shows that if one failed to capture opportunities in non-ferrous metals, AI tech stocks, or innovative pharmaceuticals, returns for the year would have been relatively flat; focusing narrowly on the consumer theme would more likely have resulted in a loss.
Reflecting on 2025, Kuanyuan Asset stated that its beginning-of-year prediction that "Sino-US relations and tariffs are the core variables" was validated by market trends.
However, in terms of specific sector allocations, there were both highlights and regrets.
Looking ahead to 2026, they believe that, considering various factors, the securities market is highly likely to maintain a volatile but upward trend, with the Shanghai Composite Index having the potential to rise above 4500 points.
At the end of last year, the CSI 300 Index had a dynamic P/E ratio of 14 times and a dividend yield of 2.78%.
Although the dividend yield had slightly declined, bank deposit rates fell even faster; even accounting for a risk discount, equities still held a significant advantage over risk-free rates.
Furthermore, from a global perspective, the P/E and P/B ratios of China's stock market remain lower than those of major developed countries.
Yet, the dividend yield is significantly higher, and the ten-year government bond yield is lower, indicating that Chinese stocks are relatively undervalued globally.
The following are key excerpts from Kuanyuan Asset's Letter to Investors:
Heavy positioning in Hong Kong-listed internet companies and early contrarian investments in the chemical industry were among the main opportunities captured in 2025.
First, the heavily weighted Hong Kong-listed internet companies made the largest contribution to the full-year performance.
Even when faced with negative news pressure early in the year, the firm was not swayed by stock price fluctuations, maintaining high positions throughout the year and achieving satisfactory results.
Second, in chemical stock investments, based on an understanding of the industry cycle, they positioned themselves early on the contrarian side.
Although the chemical industry remained at a bottom throughout 2025 with no improvement in sector sentiment,
stock prices reacted early due to national policies against "involution," leading to a rally in the chemical sector.
Third, in 2025, they increased investments in the machinery equipment industry.
Many quality stocks in this sector had reasonable valuations, strong competitiveness, and exposure to the robotics theme.
Although stock prices were significantly impacted during the trade war period, they later reached new highs, contributing to the product's performance.
Finally, investments in bank stocks also helped performance, but the contribution was limited relative to the position size.
The shortcomings in the 2025 investments mainly manifested as missing the two hottest sectors: non-ferrous metals and artificial intelligence.
Early in 2025, they conducted in-depth research and discussion on popular stocks in these two sectors.
Due to a mistaken perception of the traditional strong cyclicality of non-ferrous metals and an insufficient understanding of supply bottlenecks and sustained demand growth, they missed an opportunity that could have been captured.
Regarding the computing power concept stocks within AI, they also once felt there was good investment value at low levels.
Unfortunately, a lack of deep comprehension of the industry's vast growth potential and companies' core competitiveness led them to miss out on stellar stocks that surged over 500%.
Additionally, the heavily weighted home appliance stocks in 2025 performed weakly throughout the year due to investor concerns about earnings uncertainty stemming from the anticipated subsidy phase-out in 2026, which also dragged down the overall performance.
Core factors influencing China's securities market in 2026 include national policy stability and continuity, and international relations characterized by博弈 and coexistence.
International relations are inherently complex, especially with the challenges to Western values since Trump took office.
Internal conflicts within G7 nations over tariffs and NATO defense spending分摊 present both advantages and disadvantages for China's foreign relations.
First, Sino-US relations. In 2026, Sino-US relations will remain a core factor affecting the stock market.
Tariff negotiations have only reached a阶段性 understanding and cannot guarantee a permanent solution.
It is entirely possible for negotiations to reach a stalemate again this year.
Investors should maintain vigilance, although a complete breakdown in talks remains a low-probability event.
Second, China-EU relations. Despite differing positions in political and diplomatic areas, this has not substantially affected the robust economic exchanges between the two sides, with the EU being one of the top three sources of China's trade surplus.
The ongoing Russia-Ukraine war, now in its fourth year, has impacted further political and economic cooperation.
A reasonable resolution to the war at an early date would undoubtedly be a significant positive for both the world and China.
Third, Sino-Japanese relations. Recent remarks by the Japanese Prime Minister have led to a sharp cooling of relations, which is unlikely to recover in the short term.
This will impact the tourism industries of both countries, though economic exchanges should remain stable. Sino-Japanese relations remain highly linked to the Taiwan Strait issue.
Housing prices and sales volumes are approaching a阶段性 bottom area.
Third, changes in the real estate sector—bottoming and consolidation.
Over the past two decades, the impact of real estate development on China's economy has been undeniable: a booming real estate market meant a booming Chinese economy, and a slump in real estate posed significant challenges.
Key real estate metrics to watch are annual sales volume and price changes.
In terms of sales volume, national real estate sales in 2025 are projected to decline by another 13%, to approximately 8.4 trillion yuan.
This continuous decline directly led to a drop in total fixed asset investment in society for 2025, pulling down the economic growth rate.
In terms of price, the national average real estate price in 2025 still fell by 7-8%.
For the total存量 real estate value exceeding 300 trillion yuan, price declines obviously lead to wealth shrinkage,
which is the fundamental reason for the持续 sluggish consumption over the past three years.
In 2026, they believe price stability is the key foundation for boosting consumption.
From the perspective of national policies and industry trends, Chinese housing prices and sales volumes are approaching a阶段性 bottom area.
At the very least, in major first and second-tier cities with stable populations, the downside from current levels is limited.
The valuation of major indices still holds a significant advantage compared to risk-free rates.
Fourth, risk-free rates and market valuation—equity assets show significant advantages.
Last year, they also analyzed the comparison between risk-free rates and the CSI 300's valuation and dividend yield,
finding the CSI 300 held an overwhelming advantage, which was a main reason for their optimistic market view at the time.
A year later, China's ten-year government bond yield is 1.85%, the one-year fixed deposit rate is 0.95%, and the three-year rate is 1.25%,
while the CSI 300 Index has a dynamic P/E of 14 times and a dividend yield of 2.78%.
Although the index rose in 2025 and the dividend yield slightly declined, bank deposit rates fell even faster.
Even considering a risk discount, equities still maintain a clear advantage over risk-free rates.
Particularly significant is the major change in the assessment system in recent years, which imposes clear requirements for dividend payouts by state-owned listed companies and mandates gradual increases, undoubtedly enhancing the attractiveness of the securities market indirectly.
A trade surplus is beneficial for the valuation uplift of the domestic stock market.
Fifth, national competitiveness—continuous improvement.
China's trade surplus for 2025 is预计 to exceed $1.2 trillion, a more than 200% increase from the $350 billion during the 2018 Sino-US trade war.
After the pandemic and trade war, the ability of the nation and its enterprises to cope with global competition has grown stronger.
Many excellent companies are going global, building factories worldwide to circumvent tariff barriers.
Domestically, many high-tech companies have broken through key technological barriers, solving "bottleneck" projects,
particularly in areas like chips, communications, and equipment, leading to continued enhancement of national competitiveness.
Historically, we have seen stock market surges in Japan and Taiwan against the backdrop of持续 expanding trade surpluses.
Overall, a trade surplus is conducive to boosting the valuation of the domestic stock market.
Sixth, major asset allocation—the attractiveness of the secondary market is prominent.
Seventh, consumption willingness—monitoring opportunities for recovery.
AI is a long-term development trend; focus on companies that can integrate AI with their core business.
Eighth, artificial intelligence—separating the wheat from the chaff.
They believe artificial intelligence is undoubtedly a long-term future trend.
This wave is far from over and will present numerous investment opportunities.
However, rapid industry development does not guarantee benefits for all companies within it; it is entirely possible that some companies are overvalued due to the hype.
Historically, the emergence of the aviation industry was also revolutionary.
Although airlines created immense value for society, few have truly created value for shareholders.
The internet boom starting in 1999 changed our way of life, but many well-known companies from that era have almost completely disappeared.
The massive capital expenditures by US tech giants in the AI field currently lack fully effective profit models,
and these huge expenditures are supported by issuing long-term bonds, which carries significant risk.
They believe the focus should remain on companies that can truly integrate AI technology organically with their existing business and generate sustainable earnings.
For companies merely competing on AI capital investment without considering integration with their core business, caution is warranted.
Profits show clear signs of recovery; valuations are low compared to global peers.
An examination of the overall profit growth rate of listed companies over the past decade reveals that, as of September 31, 2025, there were clear signs of profit recovery in 2025, reversing the持续下滑 trend seen in 2023 and 2024.
In years of strong corporate profit growth over the past decade, the stock market mostly performed well, such as in 2017, 2019, and 2020.
Conversely, years of low or negative earnings growth saw significant index corrections, as in 2018, 2022, and 2023.
A valuation comparison table, as of December 31, 2025, shows that China's P/E and P/B ratios remain lower than those of major developed countries.
The dividend yield is significantly higher, while the ten-year government bond yield is lower, indicating that Chinese stocks are in a state of relative global undervaluation.
Based on the analysis of the above key factors, their market outlook for 2026 is: relatively undervalued, volatile with an upward bias.
The Shanghai Composite Index has the opportunity to reach above 4500 points.
At the end of 2025, the Shanghai Composite Index had a P/E of 16.6x, P/B of 1.49x, and a dividend yield of 2.4%.
The CSI 300 had a P/E of 14.2x, P/B of 1.48x, and a dividend yield of 2.8%.
Considering the ten-year government bond yield, bank wealth management product rates, global valuation comparisons, and systemic risk factors,
the current valuation of China's securities market is still reasonable to偏低.
The real estate industry has experienced four years of declines in both volume and price, with sales volume and prices approaching a阶段性 bottom area.
With sufficient policy support from the state, it has a full opportunity to stabilize, which would bring positive changes to the Chinese economy, overall societal wealth, and the securities market.
The gradual improvement in international relations (or at least no significant deterioration), the continuous enhancement of national competitiveness, consumption willingness being at a trough, the comparative attractiveness of the secondary market, and the stabilization and recovery of overall listed company profits
are all reasons supporting a continued cautiously optimistic view of the stock market.
Of course, they also acknowledge that Sino-US tariff negotiations will involve反复 and uncertainty, a significant rebound in real estate sales and prices is unlikely, and expectations for a unilateral bull market are also low.
In 2026, the securities market is more likely to maintain a volatile upward trend, and the Shanghai Composite Index has the opportunity to see levels above 4500 points.
Four preparatory measures for investing in 2026.
Kuanyuan's current investment portfolio has an estimated 2026 dynamic P/E ratio between 11 and 12 times, with an average dividend yield around 4%.
Future overall earnings are expected to maintain double-digit growth rates. They believe such a portfolio should perform well in 2026.
Aligning with their cautious optimism for the 2026 securities market, Kuanyuan Asset's portfolio positioning is at a relatively high level compared to the past twelve years.
In terms of specific investments:
First, they will continue to closely monitor industry and operational changes in key portfolio companies, maintaining dynamic optimization of the investment portfolio.
Second, they are prepared for potentially increased index volatility in 2026 and will aim to reasonably reduce positions during periods of market euphoria.
Third, while AI presented huge global investment opportunities in 2025, they will closely monitor whether a bubble burst could trigger systemic risks in 2026.
Finally, as the world remains in an era of turbulence, preparing for unexpected political and economic events is a constant necessity in their investment work.
The internet and machinery equipment sectors still have significant room and opportunity.
Key sectors they are optimistic about include the internet industry.
They believe that although some Chinese internet companies have seen accumulated gains, the price increase stems more from持续超预期的 earnings, with valuations not much higher than three years ago.
Meanwhile, earnings stability and growth potential are stronger than before, and the national regulatory environment has significantly improved.
The rise of AI genuinely benefits the business development of relevant companies, yet the market has not assigned a corresponding premium, making them worth持续关注.
The machinery equipment industry, after over two decades of rapid development, has secured a place globally.
The massive exports of Chinese electromechanical products and automobiles rely on the support of the entire machinery equipment industry chain.
The domestic machinery equipment industry boasts numerous quality companies, overall reasonable valuations, and is expected to sustain growth in the coming years.
The rapid rise of humanoid robots, in particular, brings significant earnings growth opportunities and valuation uplift potential to this sector, an area they believe warrants close attention.
The home appliance sector is at a low level; a renewed探底 in major consumption could present an opportunity.
Home appliance industry: Due to concerns over the持续低迷 real estate sector, the 2026 subsidy phase-out, and rising costs from increasing non-ferrous metal prices,
the home appliance sector performed poorly in 2025, significantly underperforming the market, and currently trades at historically relatively low valuations.
They believe some excellent companies have already weathered the impact of four years of real estate decline while maintaining earnings growth, demonstrating superior management.
This also indicates that appliance sales are not highly correlated with new home sales, being driven more by replacement demand.
Factors like the subsidy phase-out and rising copper prices have already been addressed through channel inventory compression and reasonable price hikes, having a limited impact on actual corporate earnings.
Moreover, overseas profits already account for over one-third of total profits for some quality companies, allowing global operations to smooth out regional profit fluctuations.
Major consumption sector: The food and beverage industry remains in a relatively sluggish period.
Factors like the "eight-point regulation," consumption downgrading, and earnings reports not having fully bottomed have kept stock prices in a downward trend.
They believe the food and beverage industry has experienced five years of decline, with stock prices at relatively low levels.
Considering the sound business models and operating cash flows, if stock prices experience another探底 in 2026, it might present a good investment opportunity.
The textile & apparel, pharmaceutical, and light industrial manufacturing sectors also contain stocks with good value; sometimes what is needed is patience to wait for the opportunity.
Brand enterprises with global localized manufacturing capabilities will be revalued.
Globalized operating enterprises: China's $1.2 trillion+ surplus in 2025 is both positive and presents significant challenges.
This is the first time in history a single country has achieved a surplus exceeding $1 trillion.
Most countries cannot endure long-term trade deficits, and trade protectionism will likely spread rapidly.
It won't be just the US; other countries will inevitably emulate the US by imposing unilateral tariffs on China.
The formal生效 of Mexico's tariffs on Chinese goods in 2026 marks the end of the simple "re-export trade" model.
Future manifestations of national competitiveness will升级 from product exports to capacity出海.
Brand enterprises possessing global localized manufacturing capabilities will be revalued.
Increased tariffs on China by other countries will actually benefit these enterprises.
For example, the EU's plan to tax Chinese semi-steel tires benefits companies with overseas production capacity.
Anti-involution industries: Sectors like chemicals, steel, cement, and express delivery are at relative industry lows.
The state is actively promoting related anti-involution policies to avoid disorderly competition, which will benefit industry profit recovery, with leading companies gaining the most.
Of course, differences in competitive landscapes, concentration levels, and exit barriers across industries will lead to varying impacts from anti-involution policies, and they will closely monitor the opportunities therein.
