Editor's note: As 2026 begins, the A-share market is witnessing a historic moment, with the SSE Composite Index achieving a strong 17-day winning streak and surpassing the 4100-point mark, a ten-year high. The driving factors behind this rally, its relationship with the economic fundamentals, and the outlook for 2026 have become key points of focus in the market. Today's (Jan. 19) just-released data shows that the Chinese Mainland's GDP growth rate for the entire year of 2025 is 5%.
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. As 2026 begins, the A-share market has reached a historic moment: the Shanghai Composite Index has achieved 17 consecutive days of gains, breaking through the 4100-point mark, a ten-year high. Behind this robust rally are the combined effects of policies, capital, and industries. But is it also driven by short-term local hot spots? To discuss these issues, we have invited Zhang Chaoyue, senior macro analyst from Northeast Securities, Yang Delong, Chief Economist at the First Seafront Fund, and financial commentator Guo Shiliang for their insights. Hello, everyone.
First, I would like to ask Mr. Zhang how you view the current strong performance of the A-share market. What are the main supporting factors? Are they driven by investment hotspots like AI?
We know that this current bull market began in the third quarter of 2025 and is driven by both liquidity and earnings. After the "924" meeting of the three ministries in 2024, we observed a significant expansion of broad liquidity in China. This indicates that policy efforts in China have indeed become more proactive. Against the backdrop of this liquidity expansion, we have seen a macro context that supports the valuation uplift of A-shares. Therefore, if there are industries or policies that act as catalysts, such as last year's efforts toaddress intensifying "involution" and overseas events in the AI industry, we can see significant valuation increases in A-shares.
Alright. Mr. Guo, what do you believe are the supporting factors for this A-share bull market?
There are several supporting factors. First, there is a global AI technology revolution underway, and the A-share market is benefiting from it. Second, Chinese stocks are currently significantly undervalued compared to those in mature markets like Europe and the US. This discount makes them an attractive consideration for foreign capital. Third, the funding environment in the A-share market has undergone substantial changes, especially under a low-interest-rate environment. A significant amount of bank deposit funds is flowing into the stock market, leading to a trend of investment conversion from deposits. According to incomplete statistics, the scale of demand deposits has reached over 40 trillion yuan, and the volume of one-year fixed-term deposits is also substantial. Once these two types of funds start to convert into investments, they will continuously provide new incremental capital for the A-share market, creating a favorable funding chain to drive the market. Additionally, the current margin trading (financing) and securities lending balance in the A-share market accounts for about 2.5% of the market's circulating value. During the peak of the leveraged bull market in 2015, the margin trading balance accounted for 4.7% of the circulating value. This indicates that there is still a potential lifting space of 1% to 2% for the margin trading balance in the A-share market, with a release potential of 1 to 2 trillion yuan. This also serves as a major source of incremental capital for the A-share market.
In the wake of the A-share market's 17 consecutive gains, nearly 30 listed companies recently issued profit warnings for 2025—a somewhat uncommon phenomenon. Does this indicate that some sectors may have become overheated and valuations too high? Mr. Zhang?
It is quite reasonable for listed companies to issue profit warnings at this time. In a climate of heightened sentiment, exposing potential issues and alerting them to risks has far less negative impact than doing so during a more pessimistic sentiment. The principle behind this is similar to exchanges raising margin requirements for financing. In the context of 17 consecutive gains, most sectors have indeed seen rapid price increases driven by sentiment. However, we should note that while some sectors are experiencing high valuations, the overall valuation of A-shares remains relatively reasonable.
- OK. The earlier discussions mentioned that the strength of the current A-share market is closely linked to investment hotspots like AI. However, there are also discussions suggesting a "temperature difference" between the stock market's rise and the economic fundamentals. What are your thoughts on this, Mr. Zhang?
There's a saying, "The ducks know when the spring river water warms," suggesting that the capital market and analysts who monitor data might be the first to sense economic recovery. If the entire society feels the economy is improving, it's likely that we are already in the later phases of a recovery cycle or a booming stage. Data shows that the ongoing demand growth in the United States, especially in its goods, has significantly driven industrial growth, showing a trend of recovery since the fourth quarter of 2024. We also know that China's exports have aligned with this timeline, continuously exceeding market expectations since the fourth quarter of 2024. Meanwhile, the recovery in A-share earnings also began to trend upward around the same time, in the second half of 2024. While the public may feel some temperature differences, we do see a clear trend in China's earnings recovery.
Alright. Mr. Yang, what are your thoughts on this?
The temperature difference between the fundamentals and market performance is actually due to differing perspectives. Fundamentals mainly focus on traditional industries, whereas market speculation is driven by emerging sectors, so there is no inherent connection. In the context of the old-to-new transition, technology innovation industries that represent the direction of economic development have attracted a significant inflow of capital. The current AI technology revolution is expected to provide tremendous growth opportunities for these emerging sectors.
- Newly released data indicates that mainland China's full-year GDP growth rate for 2025 is 5%. How do you view the support of macroeconomic fundamentals for the stock market's rise? Mr. Guo?
Given the current high baseline, achieving this macroeconomic data is quite challenging. If future economic growth reaches around 5%, it will undoubtedly have a positive impact on the stock market. However, while fundamentals are one factor influencing market direction, the most critical aspects are the overall degree of monetary policy easing and the changes in the market's funding environment. The current support for the A-share market's rise primarily comes from sentiment-driven and capital-driven factors, especially under a low-interest-rate environment, where a significant amount of deposit funds is transitioning into the A-share market, serving as potential incremental capital. Therefore, the economic fundamentals are just an additional condition supporting the rise of A-shares.
Right, what's your view, Mr. Zhang?
We know that industrial enterprises make up a significant portion of the A-share market, so the macroeconomic fundamentals supporting the stock market probably come largely from the recovery of the industrial cycle. Upon reviewing, we indeed found that the earnings cycle of A-shares is highly consistent with the global industrial cycle. The global industrial cycle is also very likely to reach a peak in 2026. As the world's manufacturing powerhouse, China is well-positioned to benefit from this upward earnings cycle. Therefore, we are relatively confident that the recovery in earnings will drive stock market growth in 2026.
Alright. While the A-share market remains hot, last week we saw the three major securities exchanges in Mainland China jointly release a notice to raise the minimum initial margin requirement from 80% to 100% to reduce leverage. However, the market generally believes that adjusting the margin requirement will not lead to a trend shift in the market; it may suppress market activity in the short term but will help ensure stable and healthy development in the long term. Mr. Guo, how do you assess the current level of leverage in the A-share market?
Currently, the overall leverage ratio in the market is relatively controllable. After the clearing of off-market financing post-2015, the leveraged funds in the A-share market mainly come from margin financing within the exchange, making the risks manageable and the leverage ratio relatively low. At present, the margin financing balance exceeds 2.6 trillion yuan, accounting for only 2.5% to 2.6% of the total circulating market value of A-shares, which is markedly different from ten years ago. Considering that the overall valuation of the A-share market is relatively reasonable, the leverage ratio is manageable, and the expected earnings growth for listed companies may accelerate in the future, the current valuation of around 4000 points is not expensive. If the earnings growth of listed companies in 2026 exceeds market expectations, the forward P/E ratio for the A-share market may further decline. Overall, the current stock market valuation is quite reasonable.
Right, how about you, Mr. Yang?
Although the margin financing balance has exceeded the 2015 peak, at that time there were many off-market financing activities, which are virtually non-existent now. The amount of off-market financing back in 2015 was potentially larger than the margin financing balance. Therefore, looking at the overall leverage ratio, it is significantly lower than the peak level in 2015. Additionally, the total market capitalization back then was only about 60 trillion yuan, whereas it now exceeds 120 trillion yuan, doubling the market cap at that time. This also indicates that the current market leverage ratio is not very high, suggesting that the bull market is still in its mid-stage and not yet at the later stage. It is crucial to adhere to value investing, selecting good industries, companies, or funds based on fundamentals, whether for traditional value stocks or future growth stocks, to better seize opportunities in this prolonged bull market.
Alright, as we conclude the show, based on the factors just mentioned, how do you view the A-share market trend in 2026? Mr. Guo, what are your thoughts? What risks or opportunities should we pay attention to?
The direction of the stock market in 2026 will depend on whether the Federal Reserve will cut interest rates more than expected, whether domestic economic fundamentals will surpass expectations, and whether domestic deposit funds will accelerate their investment conversion. These factors will directly influence the future height of the A-share market's upward movement. Currently, the 4000-point mark has been a strong resistance zone in the A-share market, but once the market stabilizes effectively above 4000 points, it will transform from a strong resistance to a strong support level, potentially marking the starting point for a new bull market. However, given that the total market capitalization of the A-share market has reached over 120 trillion yuan, with a circulating market value exceeding 100 trillion yuan, the likelihood of continued sharp rises in the A-share market is somewhat limited. This current rally has merely elevated stock valuations to a reasonable level. The essence of the stock market's rise stems from a sustained increase in its fundamental valuation anchor. In 2026, the A-share market may show a trend of a steadily rising central value, but amid a risk-averse backdrop, the chances of continuous irrational surges are low. The market will likely oscillate between 3800 and 4800 points.
【Anchor】OK, thank you to all the guests. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Laura Cheung, Rachel Liu | Translate: Kato Ip | Proofread: Chris Liu
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