Harvest Fund's Fang Han: In the Year of the Horse, optimistic about AI diffusion, supply and demand improvement, and the main theme of pro-cyclical recovery

【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, voices from foreign investment banks praising China are incessant. 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 profitability, and capital inflows may drive up A-share valuations. These judgments reflect international capital’s recognition of China’s economic transformation direction 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.

“From the expectations of institutions at the end of 2025, this is a year with relatively strong consensus in the past three years,” said Fang Han, Director of Stock Strategy Research at Harvest Fund, in an interview with The Paper.

According to Fang Han’s analysis, there are two clear major consensus points in the 2026 market: first, market structure—structural trends will continue; second, the main structural theme—focus remains on the AI technological revolution. However, behind these consensus points, he also highlights three major core divergences that market participants should pay attention to.

Regarding industry allocation in 2026, Fang Han is particularly optimistic about three main lines: AI diffusion, supply-demand improvement, and pro-cyclical recovery.

The core logic driving market operation remains unchanged

“Whether it’s the ‘core assets’ rally back then or the ‘track investment’ craze now, fundamentally, they all reflect that the Beta characteristics in the A-share market structure are becoming increasingly prominent,” Fang Han stated clearly. He explained that in China’s macro environment shifting toward medium-high growth, the difficulty of achieving broad-based high-cycle growth increases, and structural changes in industrial transformation have become the most important feature at each stage of economic growth. This makes capturing phased industrial trends a necessary skill for high returns in each mid-term cycle.

From “core assets,” “dual carbon revolution,” “localization,” to the current “AI revolution,” “revaluation of strategic resource commodities,” and “outbound expansion of leading enterprises,” the terminology has evolved, but the fundamental pricing logic remains unchanged. Fang Han emphasized that, in a historical context where stocks show more structural rather than global characteristics, the core logic driving market operation has always been closely linked to “industry trend opportunities that align with the era’s background and structural transformation.”

However, he also observes that with the highly developed social media, widespread ETF coverage of niche sectors, information dissemination speed, capital feedback efficiency, and consensus formation have far outpaced previous market cycles.

“We know that while efficient pricing is achieved, in a market environment where Beta characteristics are increasingly evident, it can also lead to excessive pricing of certain market segments driven by collective sentiment, followed by corrections,” Fang Han said.

Two major consensus points and three core divergences in the market

Fang Han candidly stated that, based on recent institutional expectations, the current market has formed relatively high consensus judgments in recent years. Against the backdrop of two consecutive years of positive performance and clearer structural features, market thinking tends to produce consistent expectations.

“Consensus can form mainly because it is often internally coherent and widely recognized by the market,” Fang Han explained.

According to his analysis, the two major consensus points for the 2026 market are quite clear: First, market structure—structural trends will persist. This judgment is based on a relatively positive domestic and international policy environment, the potential for residents to increase stock market participation through savings, and more companies crossing profit cycle inflection points. The assessment of structural features stems from the market’s own operating rules after two years of valuation repair, as well as the overall recognition that high-quality development of the capital market does not encourage rapid or excessive leverage.

Second, the main structural theme—continued focus on the AI technological revolution, from infrastructure investment to application breakthroughs in industry chains; the second major consensus is benefiting from diversified AI demand, geopolitical supply vulnerabilities, and the loosening of the US dollar credit system in commodities.

However, the more solid the consensus, the more easily overlooked the potential pitfalls. Fang Han pointed out three major divergences:

First, whether valuation expansion “will not exceed three times” and whether the “high allocation curse” around the tech sector will be broken during this historic AI revolution.

Second, whether rising prices of commodities, and possibly spreading to “low-cost” energy prices like oil, will disrupt the Federal Reserve’s path of interest rate cuts throughout the year.

Third, whether the re-pricing of hundreds of trillions of residents’ deposits maturing within the banking system, and residents’ reallocation choices, will lead to a massive shift of savings into stock assets.

Three main lines for layout: AI diffusion, supply-demand improvement, and pro-cyclical recovery

The market is simultaneously paying attention to emerging growth driven by new productive forces and the transformation value of traditional industries. For 2026 industry allocation, Fang Han focuses on three key areas:

First, the diffusion effect of new technological changes. This year’s global AI investments are shifting from simply investing in AI to applying AI to generate benefits (revenue or efficiency). He emphasizes that epic-level investments in AI infrastructure are creating revaluation opportunities for traditional industries: benefiting from supply-demand gaps in storage and semiconductor equipment; benefiting from North American power shortages in grid equipment, machinery, new energy, and materials; and segments like liquid cooling, which are expected to start delivering profits in 2026.

Second, industries with stable demand and reduced supply pressure, such as lithium batteries, military industry, offshore wind, dairy and flavoring, and aerospace.

Third, high-probability pro-cyclical assets. As the economy surpasses pressure peaks, sectors closely related to macroeconomic prosperity—real estate, food and beverages, discretionary consumption—are expected to gradually recover, increasing their winning chances.

Three potential risks to watch

Under a “rationally optimistic” tone, Fang Han’s analysis of potential risks is particularly sharp.

First, the contradiction between market behavior and policy guidance. He believes that the A-share market itself tends to accelerate upward, with retail investors and short-term funds chasing gains, combined with related public opinion influence, creating a prominent conflict with the pursuit of stable, high-quality development advocated by the capital market.

Second, whether the AI main theme will face changing expectations. He warns that North American cloud providers’ relentless capital expenditure might, under the backdrop of overdrawn corporate cash flows, reach a turning point in marginal improvements of large models. If doubts about sustained CAPEX in North America grow, the valuation and sentiment of the AI chain in A-shares could face pressure.

Third, external macro risks. If the US economy achieves a soft landing and enters an expansion cycle driven by a new round of fiscal stimulus, 2026 could mark the end of the current Fed rate-cut cycle. Such external changes could suppress global liquidity and pro-cyclical assets in A-shares.

(Source: The Paper)