Following a 30-40% valuation surge in 2025, China's market is expected to stabilize. Further upside in 2026 will depend on corporate earnings, projected at a modest 6%, signaling a shift from a valuation-driven to an earnings-driven market that requires a different investment approach.
For 2026, investors should target high-growth sectors aligned with China's national strategy (e.g., AI). However, as deflationary pressures may persist into 2027, it's also crucial to maintain exposure to high-quality dividend stocks for their steady cash returns to navigate market volatility.
While AI-driven tech exports boosted 2025 growth, they are capital-intensive with limited job creation. The expected 2026 recovery in non-tech exports is more significant as it will drive broader economic benefits like job growth, capital expenditure, and consumer spending across the region.