Core Viewpoint - The year 2026 is anticipated to be a pivotal year for the awakening of value in China's capital market, moving towards a low-volatility and high-Sharpe ratio investment phase [1][6][26]. Economic Outlook - China's economy is expected to emerge from its low point and enter a recovery phase, with exports remaining a key support for macroeconomic performance in 2026 [1][30]. - Despite overall external demand pressure, China's manufacturing competitiveness remains intact, particularly in the midstream sector, which is expected to show resilience in exports [1][30]. - CPI is likely to trend positively, with a high certainty of turning positive, reflecting the ongoing recovery in domestic demand [1][30][33]. - PPI is expected to show an upward trend, but its year-on-year positive growth needs to be verified in the second quarter [1][30][37]. Policy Perspective - Macro policies are shifting away from "extraordinary" measures, focusing instead on stabilizing expectations and supporting economic operations [2][26]. - The emphasis will be on sustainable policy adjustments rather than large-scale stimulus, with a focus on balancing short-term and long-term goals [2][27]. Asset Allocation Insights - In 2026, a "dual bull market" in stocks and bonds is unlikely; the focus will be on asymmetric volatility between the two asset classes [2][5]. - Investors are encouraged to consider undervalued, high-dividend sectors for allocation, while speculative funds should target industries with high capacity utilization and limited capital expenditure [2][5]. Sector-Specific Analysis - The midstream manufacturing sector is identified as the most certain area of prosperity for 2026, supported by enhanced export competitiveness and the implementation of anti-involution policies [5][30]. - The return on equity (ROE) in midstream manufacturing is expected to stabilize and improve, with PPI year-on-year growth anticipated to stop declining in the first half of the year [5][30]. Market Dynamics - The trend of residents moving their savings into financial assets is expected to continue, although risk appetite may not rise rapidly [2][5]. - The stock market's trading volume is projected to remain high but may not see significant increases compared to previous years [2][5]. Price Trends - The housing market's recovery is contingent on mortgage rates being lower than rental yields, which is a critical condition for stabilizing property prices [5][40]. - The relationship between mortgage rates and rental yields is highlighted as a key indicator for predicting housing price stabilization [5][40].