Zhang Yidong: A-shares will definitely outperform U.S. stocks in the next two years. The biggest highlight of this bull market is it, with technology bull, domestic demand bull, and overseas bull being the three main lines

Recently, Zhang Yidong, the global chief strategist of Industrial Securities, analyzed and forecasted the Chinese capital market at the Tianhong Fund 2025 Annual Strategy Meeting and 20th Anniversary Event.

Zhang Yidong changed his previous bullish stance on Hong Kong stocks and is now firmly optimistic about A-shares, stating that A-shares are the best equity investment for the next 2-3 years.

The investment notebook representative summarized the key points as follows:

1. After the Politburo meeting on September 26, my viewpoint underwent a significant change, shifting from a bear market bottoming out and deep rebounds to a reversal framework. My judgment on the Chinese stock market has reversed.

2. The technology bull market will run through this bull market, and if the technology bull can activate the assets held by local governments... there is hope for the "technology bull" and "domestic demand bull" to shine together.

Moreover, with Trump's moves (regarding the trade war), once things settle down, we believe going overseas remains a strategic direction.

1. This bull market is actually the most Chinese-flavored—it's the most characteristic national bull market in China. Unlike the advantages developed during historical economic downturns, this time, in addition to mergers and acquisitions, enhancing shareholder returns is also crucial.

2. I strategically remain optimistic about Hong Kong stocks, but in terms of timing, there will be more opportunities in A-shares next year or the year after.

A-shares will outperform Hong Kong stocks in the next one or two years, and in about two years, they will definitely outperform U.S. stocks.

1. If we look back many years from now, the biggest highlight of this bull market may be its potential to realize the feasibility of China's equity finance.

2. We are long-term optimistic about gold and digital currency Bitcoin, primarily due to the issues with the U.S. national balance sheet.

Zhang Yidong believes that the reversal of the Chinese stock market is backed by one change, two fundamentals, and three main lines. Whether in China or the U.S., the stock market will definitely outperform the bond market; Chinese government bonds are in a strong volatile market, while U.S. bonds are in a weak volatile market.

Below is the essence compiled by the investment notebook representative (WeChat ID: touzizuoyeben), shared with everyone:

The Chinese stock market has reversed; share buybacks and mergers and acquisitions are both very important

From the perspective of major asset allocation, I am most optimistic about the A-share market for the next two or even three years. This judgment began at the end of September.

Previously, I was more optimistic about Hong Kong stocks. In March, I proposed the arrival of spring for Hong Kong stocks, and in late July, I suggested that "sowing tears will surely lead to a joyful harvest."

Hong Kong stocks have experienced a five-year bear market, with valuations at historical lows, becoming a global value pit. The best companies in Hong Kong stocks have begun to generously conduct share buybacks.

In the low-growth, low-interest-rate, and low-inflation environment in Europe and the U.S., these companies value shareholder returns, with the best companies leading the market. However, after the Politburo meeting on September 26, my viewpoint underwent a significant change, shifting from a bear market bottoming out and deep rebounds to a reversal framework. My judgment on the Chinese stock market has reversed Analyzing the Chinese stock market requires a framework of political economy, while overseas stock markets need to be deduced from the perspective of capital determinism.

The reversal logic includes one change, two fundamentals, and three main lines. The change is a directional shift in policy guidance, beginning to propose "focusing on key points and taking proactive actions," which is not a contraction framework but a shift to a proactive framework.

Why is this particularly mentioned? Investors can look at the history of the Chinese stock market; most of the time, its bull markets are initiated during economic downturns, guiding the allocation of social wealth to the capital market, thereby optimizing resource allocation, revitalizing off-market assets, resolving debt issues, and boosting domestic demand. This logic was evident in the 1990s and even in 2009, 2010, 2014, and 2015 (all were similar).

It can be said that most of China's bull markets are different from those in the United States. The U.S. often stimulates the economy through massive liquidity, and when the economy improves, that becomes the primary driving force, leading to a good stock market, which then forms a virtuous cycle with the economy.

In contrast, China is adept at mobilizing the masses, believing in the people, and then guiding social wealth through the capital market, optimizing resource allocation through the market logic.

This bull market is actually the most Chinese-style—it's the most characteristic national bull market. Unlike the advantages developed during historical economic downturns, this time, in addition to mergers and acquisitions, enhancing shareholder returns is also crucial.

The two structural monetary policy tools proposed at the press conference on September 24, among which the 300 billion special relending is not the focus, the policy guidance behind it is (the key).

The policy encourages leveraging the low-interest-rate environment through debt to enhance shareholder returns, similar to the U.S. stock market after the 2008 subprime mortgage crisis and the European stock market after the 2012 European debt crisis.

European stock markets have been underperforming compared to China since 2008. But why is their market doing so well? Let's take a casual example: the leading domestic consumption stocks in China have a lower ROE than Nestlé and Coca-Cola. However, our main business revenue is higher than theirs. Where is the difference?

It's that they generously conduct share buybacks, and these buybacks are financed through borrowing. Therefore, subsequent companies in China that consider themselves excellent should generously learn from the Hong Kong stocks of the past two years, or even earlier U.S. stocks, to enhance shareholder returns by utilizing China's low-interest-rate environment. Thus, this Chinese-style slow bull market has a solid foundation.

Two purposes of the bull market: debt resolution and domestic demand

After resolving these issues, the purpose of our reversal logic or bull market this time is remarkably similar to history, addressing two problems: one is debt resolution, and the other is domestic demand.

In the past two years, the balance sheets of residents, enterprises, and local governments have intertwined, forming a vicious cycle of contraction that is detrimental to debt repayment and stabilizing domestic demand, or the expectations have been quite poor.

Now, through revitalizing the capital market, we can greatly optimize the effectiveness of fiscal policy, monetary policy, and industrial policies represented by real estate policy, achieving a transition from land finance to equity finance

Looking Back Years Later, the Biggest Highlight of This Bull Market May Be This

I have been encouraging everyone to review the Chinese stock market in the 1990s, especially the bull markets of 1996-1997 and 1999-2001, as those two bull markets were the budding of China's equity finance.

At that time, there was no land finance. Through the rise of Shanghai and Shenzhen local stocks from 1999 to 2001, local stocks essentially achieved asset revaluation through the capital market, optimized corporate balance sheets, and alleviated the financial pressure on local governments.

Looking ahead, implementing the spirit of the 20th National Congress, we believe this bull market has hope. If we look back at this bull market many years from now, the biggest highlight may be its potential to realize the feasibility of China's equity finance.

Three Main Lines: "Tech Bull," "Domestic Demand Bull," "Going Abroad Bull"

From this perspective, why focus on the three main lines? What quality assets do local governments have now? Land finance is difficult to sustain.

In the past, local government assets were mainly related to land, which required a stable real estate market. If it is unstable, the collateral will be affected. Due to time constraints, I won't elaborate further.

What I want to say is how to revitalize local government balance sheets through real estate, with the most important being the equity in hand. Especially since 2020, there have been many frictions between China and the United States in the primary market, with U.S. capital's PE/VC investment funds withdrawing.

Taking 2023 as an example, about 80% of the funds raised in the primary market have state-owned backgrounds, including local governments, mother funds, or state-owned venture capital funds. The remaining 20% is from private enterprises or foreign investment related to the Belt and Road Initiative.

In particular, our analysis in 2020 found that these equities align with new productive forces, such as new materials, new energy, biomedicine, artificial intelligence, chips, and robotics. The first round of the bull market drove value discovery, so the "Tech Bull" will run through this bull market.

If the Tech Bull can revitalize the assets held by local governments, it will naturally benefit the improvement of balance sheets and regional economies. Once the domestic demand issue is resolved and the business environment improves, it will naturally benefit wealthy consumption and normal capital expenditures by entrepreneurs. In this way, both residents' and enterprises' balance sheets can improve, creating hope for the "Tech Bull" and "Domestic Demand Bull" to complement each other.

Moreover, with Trump's moves (regarding the trade war), once things settle down, we believe going abroad remains a strategic direction.

If influenced by the U.S. elections or Trump's policies, it is more of a tactical level. From a strategic perspective, our going abroad, especially related to the Belt and Road Initiative, remains an inevitable trend.

A-shares Will Definitely Outperform U.S. Stocks in the Next Two Years

Therefore, we believe that A-shares will be the best choice in the equity market for at least the next two to three years. A-shares will outperform Hong Kong stocks in one to two years and will definitely outperform U.S. stocks in about two years.

How to view Hong Kong stocks? The Hong Kong stock market is relatively rational, dominated by overseas funds. It performs brilliantly during the transition from bear to bull markets and also shows exceptional performance in the later stages of a bull market. However, in a bull market driven by economic downturns, the fundamentals are weak, and Hong Kong stocks do not perform as well as A-shares As China's economy gradually improves efficiency, we believe that in the later stage of this bull market, American, European, or overseas capital will flow into Hong Kong stocks.

Last year, I mocked some foreign capital, telling them that while you may hesitate now, I guess when you come to buy Chinese assets, that might be a peak of this bull market.

I am strategically bullish on Hong Kong stocks, but in terms of timing, there may be more opportunities in A-shares next year or the year after.

U.S. stocks need economic outperformance to stabilize the bull market framework

For U.S. stocks, if Trump's policies are implemented, the performance next year may not be bad. However, the style of U.S. stocks may lean towards domestic demand, financial real estate, and cyclical industries.

But from a two-year perspective, there will be significant re-inflation pressure in the U.S. in 2026. My expectation for the U.S. economy under Trump in the next four years is a rise followed by a decline. The U.S. stock market needs economic outperformance to stabilize the bull market framework; if expectations are not met, U.S. stocks will face significant risks in 2026 and 2027. This is from the perspective of equity assets.**

Regardless of China or the U.S., the stock market will definitely outperform the bond market; government bonds are in a strong volatile market, while U.S. bonds are in a weak volatile market

For major asset classes, U.S. bonds may experience weak volatility in the coming years, making it difficult to return below 3.5%, likely hovering around 4%, and possibly entering a bear market in 2026 and 2027.

Regarding Chinese government bonds, my view is that they are in a strong volatile market, while U.S. bonds may be in a weak volatile market, as China may maintain a low interest rate environment to initiate a bull market to solve problems. The worst times for the Chinese economy in the coming years have passed; recovery is slow but sustainable, with the economy neither strong nor weak, stabilizing after a decline.

In this context, the Chinese bond market will not be in a bear market, but it is also unrealistic to expect another bull market like the past two years. The stock market will definitely outperform the bond market, whether it is U.S. bonds or Chinese government bonds.

Long-term bullish on gold and Bitcoin

For gold, we are long-term bullish on gold or the digital currency Bitcoin, primarily due to the issues with the U.S. national balance sheet. The U.S. federal government debt ratio has reached 100%, and according to Trump's policies, if deficit expansion continues, by 2030, the U.S. federal government debt ratio may reach 120%.

Therefore, we are long-term bullish on gold, and even Bitcoin, primarily because of the problems with the U.S. national balance sheet.

Source: Investment Workbook Pro Author: Wang Li

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