CSC Mid-Year Strategy: Capturing Structural Themes Amid Divergent Recovery, RMB Appreciation Drives Chinese Asset Revaluation

China Securities Co. (CSC) released its 2026 mid-year investment strategy report, stating that China's economy achieved a solid start in Q1 2026, with PPI turning positive, marking a key macro inflection point for the start of an industrial cycle recovery. While Middle East geopolitical conflict has caused phased stagflationary disruptions to the global economy, it has not altered the core trend of China's moderate domestic recovery.

Looking ahead to H2 2026, the macro economy is expected to show characteristics of divergent recovery, policy support, and structural optimization. Further RRR cuts from monetary policy remain likely, while fiscal policy will focus on accelerating existing commitments. The policy roadmap centers on four major directions: expanding domestic demand, technological self-reliance, energy and resource security, and industrial structure optimization. The 15th Five-Year Plan implementation will lay the core foundation for medium- and long-term development.

RMB Appreciation and Earnings Recovery Drive Chinese Asset Revaluation

CSC noted that the moderate appreciation of the RMB and recovery in corporate earnings are resonating together, creating a systemic revaluation opportunity for Chinese assets. Investment should focus on capturing structural themes amid divergent recovery, targeting sub-sector opportunities within four major segments: consumption, technology, resource security, and thematic dividends.

Economic Backdrop

In H1 2026, China's economy achieved a solid start: Q1 GDP grew 5.0% year-on-year, accelerating 0.5 percentage points from Q4 2025; March PPI turned positive, ending negative growth; industrial enterprise profits rose 15.2% year-on-year in January-February. However, the recovery shows marked K-shaped divergence - consumer confidence remains in a low recovery zone, private investment is still negative, and the real estate market continues to bottom out.

The Middle East conflict that erupted in late February has become a key global market variable, pushing up global inflation and energy prices. The IMF cut its 2026 global economic growth forecast to 3.1%. However, the conflict's impact on China's domestic economy is limited, and the largest external uncertainty for the full year remains the pace of Fed monetary policy.

H2 2026 Investment Strategy

Domestic economic recovery is expected to continue in H2, with improvements in industrial enterprise earnings continuing to transmit to the real economy. High-tech manufacturing and modern services will remain the core growth engines. CSC recommends RRR cuts this year, with rate cuts to be calibrated based on internal and external conditions. Investment strategy focuses on four major segments: consumption, technology, resource security, and thematic dividends. RMB appreciation provides an additional tailwind for Chinese asset valuations, particularly attracting inflows from foreign investors seeking both returns and currency gains.