Rongtong Fund's Li Jin: The upward logic of the stock market remains intact; the three major driving variables are the key observations

【Editor’s Note】

2026 marks the beginning of the “14th Five-Year Plan” period, as China’s economy enters a new development stage.

Under the new circumstances, international investment banks continue to be bullish on China. Goldman Sachs recommends overweight positions in A-shares and Hong Kong stocks in 2026; JPMorgan Chase has upgraded the ratings of mainland China and Hong Kong markets to “Overweight”; UBS believes that policy support, improved corporate earnings, and capital inflows could drive up A-share valuations. These judgments reflect international capital’s recognition of China’s economic transformation and development prospects in 2026, and also suggest that, as winter turns to spring, global capital may flow eastward.

The “Chief Connection” market outlook for 2026, titled “Spring Water Flows East,” also conveys this meaning. In the outlook, the “Chief Connection” studio will interview dozens of authoritative economists, fund managers, and analysts to discuss their views on China’s economy in the new year and analyze new investment opportunities.

“In 2026, I think there is still some room for stock market growth. The core drivers of the rise are still in place, and valuations of growth sectors are not high,” said Li Jin, Deputy General Manager of Equity Investment at Rongtong Fund and manager of Rongtong Industry Trends Select Fund, during a guest appearance on the “Spring Water Flows East—‘Chief Connection’ 2026 Market Outlook” special on February 18. He believes that the current market temperature is neutral to slightly hot, but overall still within rational bounds.

Li Jin pointed out that this upward trend is unlikely to have ended, driven mainly by policy guidance, liquidity environment, and industrial trends—these are also key variables for future market observation.

Regarding specific directions, Li Jin remains focused on computing power, believing that some raw materials, chips, and storage sectors have significant potential for earnings surprises. Meanwhile, he sees the independent energy storage sector entering a rapid growth phase, with sustained growth momentum expected in the coming years.

He is not pessimistic about consumer and innovative drug sectors. He believes that after prior adjustments, valuation pressures have been digested, and these sectors are gradually entering a suitable deployment zone.

In 2025, Li Jin managed four products, two of which doubled in net value within the year, with Rongtong Industry Trends notably winning the 2025 stock fund championship.

Below is an edited transcript of the interview with Li Jin by Pengpai News:

Pengpai News: Looking back at 2025, the A-share market saw significant gains. In your view, what is the core logic driving this market upward?

Li Jin: Data shows that in 2025, the rise of A-shares was jointly determined by valuation and earnings growth, each contributing about half.

Overall, the ChiNext Board, with a growth style focus, had greater valuation and earnings elasticity, achieving larger gains.

The two sectors with the biggest gains in 2025 were non-ferrous metals and communications. The main companies in these sectors experienced high earnings growth, supported by fundamentals, and their leading firms’ valuations remained relatively low.

Therefore, the stock market rally in 2025 was a relatively healthy upward trend.

Pengpai News: In your recent quarterly report, you mentioned an observation: “Current investor pessimism about the real estate market and retail investors’ caution about entering the stock market indirectly indicate that the market remains rational.” Does this mean, within your framework, that the market has not yet entered an overheated phase?

Li Jin: The most important indicator is the valuation level of the stock market. Currently, A-shares are not highly valued.

In a major bull run, it’s crucial to look at the technology growth sectors.

The representative index is the ChiNext Index, which is still slightly below its 15-year historical median, not overheated. In contrast, the valuations of the CSI 300 and SSE Composite Index are relatively high historically, mainly because banking, non-ferrous metals, insurance, and dividend-paying sectors have seen their stock prices continuously reach new highs.

Another indicator is retail investor enthusiasm. The irrational part mainly involves a sharp increase in trading volume and high activity in certain thematic sectors.

By the end of 2025, market turnover was not overly active. However, after the start of 2026, trading volume rapidly expanded from 2 trillion to 3 trillion yuan, with some early-stage industries surging significantly, signaling some irrational behaviors.

The market temperature is currently neutral to slightly hot, but overall still within rational bounds.

Pengpai News: You have publicly stated that “this upward trend is unlikely to have ended,” but also noted in your quarterly report that “based on past experience, future trends are more about habit than rationality.” What is the core logic supporting your view that the trend will continue?

Li Jin: I believe it hasn’t ended because the three main drivers of this rally are still in place, and these are also the key points for future observation: policy, liquidity, and industry trends.

First, on policy: both domestic and overseas policies are very friendly to the stock market. The market has become an important lever for boosting consumption and consumer confidence, aiming to stimulate spending and stabilize the economy. All these are positive supports for the real economy and the stock market.

Second, liquidity: the Federal Reserve remains in a rate-cutting cycle, with an expected rate of around 3% in 2026; domestic liquidity is also ample, with rate cuts and reserve requirement reductions on the horizon.

Third, industry trends are continuing. Downstream demand for AI is rising rapidly, and the valuations of leading companies are still relatively low. The industry growth cycle is still in its early stages.

Regarding stock market outlook, future trends mainly depend on tracking these three core variables. If any of these change, adjustments to the view may be necessary.

Pengpai News: The December 2025 Central Economic Work Conference emphasized “stability with progress” and “stimulating endogenous motivation.” How do you think this policy tone will impact the market structure (sector rotation) and investment styles (growth/value) of A-shares in 2026?

Li Jin: Stimulating endogenous motivation in China’s economy benefits from two major industry directions: one is technological innovation, and the other is stimulating domestic demand.

Technological innovation is a key driver for unleashing social endogenous power and remains the main theme of the market.

As the core track of technological competition, the AI industry is shaping the future decades’ international landscape and industrial upgrade paths. Countries are increasing their investments, which is inevitable. Currently, AI is still in the “big infrastructure” stage, with significant capital expenditure, directly benefiting the entire supply chain—from GPUs and optical modules to PCBs—demanding sustained growth.

Meanwhile, industry development follows a clear rhythm of “hardware first, application follow-up.” In applications, AI has begun generating substantial revenue in cloud computing, AI advertising, and marketing, and is driving productivity changes in programming and other fields. In autonomous driving, driverless taxis without safety operators are expected to gradually operate in the US and China in 2026. Next-generation overseas robots will also enter mass production. Overall, AI applications are entering a rapid explosion phase.

Besides technological innovation, stimulating domestic demand is another key to unleashing endogenous power. Opportunities abound in consumer substitution and outbound consumption.

Since December 2025, we have observed a decline in second-hand housing listings and an increase in transaction volumes, with some cities seeing prices rebound. If real estate sales stabilize and recover, traditional consumption sectors may also see an uplift.

The policy tone of “stimulating endogenous motivation” will shift A-share investment styles from “growth dominates” in 2025 to a “growth and value resonance” in 2026, leading to more balanced investment opportunities.

Pengpai News: How do you foresee the divergence in the prosperity of various segments within the AI industry chain in 2026? Besides the currently heavily held optical modules, which other sub-sectors do you believe have the potential for unexpected growth, and what are the key catalysts?

Li Jin: The AI sector has always had differing opinions, but disagreement is a good sign—it indicates expectations are not uniform.

I believe that investment in AI computing power will show clear differentiation this year. Last year’s sharp sector rally has brought most stocks’ valuations to reasonable levels.

Looking at downstream demand growth, the industry’s growth rate in 2026 is expected to slow compared to last year, meaning some stocks relying on overall volume growth will have limited performance upside, and their valuation centers may gradually decline due to slower capital expenditure growth. Therefore, the focus should be on sub-sectors where demand growth significantly exceeds industry average—what we call inflation segments.

Apart from optical modules, two main inflation segments in computing power are:

First, upstream raw materials and chips: production expansion is difficult, with long cycles, leading to supply shortages in the short term.

Second, storage: a clear supply-demand imbalance is emerging. As applications explode, the importance of AI’s memory capacity becomes evident. Once AI agents are widely deployed, storage chip prices—such as DRAM and NAND—have surged, with prices more than doubling.

These two directions have high potential for earnings surprises.

Pengpai News: You regard energy storage as a “second growth point.” Currently, the energy storage industry is in its explosive initial stage. From an investment perspective, which core link in the industry chain do you favor most? How do you evaluate the future rapid growth and sustainability of this industry, and what are the key variables?

Li Jin: Driven by capacity electricity prices and peak-valley spreads, domestic independent energy storage projects are now on par with overseas markets, entering a new stage of commercialization. I am optimistic about the industry’s sustained high-speed growth in the coming years.

Domestic energy storage faces higher requirements for lifecycle management. Once profitability is unlocked, independent energy storage units, as operational entities, differ from previous policy-driven models: first, energy storage has trading attributes (frequency regulation, spot trading), requiring longer lifecycle guarantees of over ten years and higher equipment standards; second, the shift from policy-mandated to operational entities opens up profit margins. This increases recognition and premiums for system integrators and cell manufacturers along the industry chain.

Regarding the sustainability of growth in the coming years, the key long-term issue is whether “the problem of wind and solar curtailment” in new energy development can be solved. If peak-valley price spreads continue to narrow, energy storage returns will decline, impacting demand. However, in the near future, energy storage demand is expected to maintain high growth.

In the short term, close attention should be paid to upstream lithium carbonate prices. Recent sharp increases in lithium carbonate prices have raised battery costs, causing some industry players to hold back on energy storage projects, which temporarily dampens demand. As lithium carbonate prices stabilize, energy storage projects will restart.

Short-term industry demand may fluctuate, but long-term growth remains intact.

Pengpai News: In the second half of 2025, you reduced holdings in new consumer sectors and innovative drugs, citing overvaluation or short-term positive factors being priced in. At this point, do you think these sectors are fully overvalued? Under what specific conditions or signals would you consider increasing allocations again in these long-term favored areas?

Li Jin: I reduced holdings in new consumption in Q2 2025 and in innovative drugs in Q3, mainly because the valuations of major companies in these sectors had become quite high, with some valuation premiums already priced in, and some companies’ performance had fallen short of expectations.

However, after a half-year correction, these sectors are now again suitable for gradual deployment. For example, some stocks in new consumption have fallen back to a PE of around 20 times this year, with solid earnings growth.

Similarly, for innovative drugs, the rapid rise before Q3 has slowed, with many stocks down over 30%. Yet, their growth logic still advances: China’s innovative drug exports now account for nearly 40% of the global total, and the number of clinical trials is among the top worldwide. Several blockbuster drugs have gained recognition from overseas counterparts, entered late-stage clinical trials, and received hundreds of millions of dollars in licensing agreements.

However, Chinese innovative drug companies still have relatively small market caps compared to global giants. Therefore, we can revisit some globally competitive innovative drug firms with strong product pipelines, especially those with overseas licensing or sales exceeding expectations.

I remain optimistic about the future prospects of consumer and innovative drug sectors.

Pengpai News: Besides closely monitoring known industry trends, how do you plan to build a forward-looking research system to identify early opportunities in the “0 to 1” or “1 to N” critical phases? Before including these opportunities in your portfolio, what key verification signals do you prioritize?

Li Jin: Researching emerging industries is indeed more challenging. For us, the key is to judge whether an industry is approaching a true explosion—crossing the critical point of development.

Before reaching that point, it’s a theme-driven, “0-1” stage, where performance realization is unlikely. After crossing the threshold, stock prices tend to stabilize because they are driven by earnings.

Determining whether the industry has reached the critical point involves assessing whether it has the potential for rapid expansion. For example, photovoltaic’s economic viability, new energy vehicles’ competitiveness with traditional fuel cars, or AI large models’ reasoning capabilities—all indicate crossing the industry development threshold.

Main signals include: whether commercial aerospace rockets are economically viable, whether robotaxis in autonomous driving are economically feasible compared to traditional taxis, or whether humanoid robots are ready for commercial sales. These are the primary verification signals.

In addition, we closely track product validation, customer orders, and other fundamental data.

Pengpai News: You advocate a “balanced growth track allocation + focus on leading stocks + contrarian dynamic adjustments” portfolio management approach. How do you practically balance sector diversification with stock concentration? How do you avoid “fish tail” phenomena in certain sectors?

Li Jin: Sector diversification in a portfolio aims mainly to control drawdowns and volatility. When asset drivers differ, the portfolio tends to show orderly rises and falls, and can switch flexibly to more cost-effective sectors during bubbles.

Sector concentration aims to capture excess returns from rapid industry growth. Without heavy positions in exploding sectors, portfolio growth can be slow.

Stock concentration is based on long-term industry logic: only a few companies with sustained competitive advantages can survive cycles, promote industry progress, and generate long-term excess profits. Therefore, stock selection must focus on quality—willing to pay reasonable or even premium valuations for core companies, rather than buying second- or third-tier firms at low prices.

The seemingly contradictory strategies of sector balance and concentration are actually unified at the stock level. Whether to overweight a sector depends on whether enough high-potential, high-quality companies can be found within it. Sector allocation ratios should not come at the expense of lowering stock selection standards. Cross-sector comparison helps avoid late-stage sector declines.

When managing assets across different types and cycle stages, natural comparisons of valuation and risk are made. When a sector’s valuation bubbles, reducing positions and shifting to undervalued areas helps avoid “fish tail” risks. If most holdings are overvalued, shifting to defensive assets or reducing positions can help mitigate systemic risks.

Pengpai News: For ordinary investors aiming to seize growth opportunities and control risks in 2026, what specific allocation strategies would you recommend?

Li Jin: I believe that in 2026, the stock market still has some upside, with the main drivers continuing, and valuations of growth sectors not high.

For individual investors wanting to participate in market gains, there are two main ways: buying funds or selecting stocks themselves. For funds, focus on index funds with valuations below their historical median; if you know a fund manager well, you can choose their active funds. Buying active funds essentially involves selecting a fund manager, so understanding their investment framework, style, and capabilities is important.

When choosing stocks, prioritize companies with clear competitive advantages, and adopt a long-term holding perspective—study, understand their business models and core barriers.

In any case, it’s advisable to focus on industry leaders. Smaller companies are still doing relatively well, mainly because they haven’t been in the market long enough to compete with the leaders. Only companies with core competitiveness can sustain excess profits over time.

Pengpai News: Looking ahead to 2026, what do you see as the main investment risks? Specifically, for your heavily held AI sector, is the core risk whether growth performance can meet expectations?

Li Jin: On the macro level, key factors are policy guidance and liquidity trends, which are crucial for stock valuations.

For the AI sector, the main investment opportunity lies in computing power. Industry-wise, it’s important to monitor whether downstream demand growth aligns with expectations—such as token call volume maintaining rapid growth; corporate capital expenditure continuing; and large models progressing steadily. If these core drivers change, we should be alert.