GF SEC Liu Chenming: Rejecting traditional macroeconomics, looking at the 2026 layout window from debt resolution and changes in profit structure | Alpha Summit

On December 19th, at the "Alpha Summit" co-hosted by Wall Street Insights and the China Europe International Business School, Liu Chenming, Assistant Director and Chief Strategist of GF Securities, delivered a speech titled "Breaking Free from the Cage: Breaking the Shackles of Historical Experience - Annual Strategy for 2026."

He stated that in 2025, a unique phenomenon of "AI technology stocks and resource products (gold, copper)" strengthening simultaneously will emerge globally, which is not a logical contradiction but a common pricing response of major global economies to the core contradiction of the "debt issue." The only way to resolve debt is through technological progress to enhance total factor productivity (AI path) or through inflation to dilute debt (resource path), and these two aspects constitute the duality of the current macro logic.

Liu Chenming believes that the profit structure of the Chinese equity market has undergone a qualitative change, evolving from the past "80/20" to the current "60% traditional domestic demand + 40% emerging industries and overseas expansion." Among them, the overseas chain demonstrates higher profit quality than domestic business, becoming the core support for market resilience.

Looking ahead to 2026, he believes the trend of ROE in A-shares will become more evident. Against the backdrop of valuation restraint, strengthened regulatory control, and the entry of long-term incremental funds such as state-owned enterprises and insurance capital, the market will shift from a "fast bull" to a healthier "slow bull." Due to significant "supply constraints" facing key industries such as AI, semiconductors, and resource products, the industrial trend is unlikely to end in the short term.

The following are highlights from the speech:

1. Starting from the classic sovereign debt evolution equation, under the premise of no substantial defaults, there are three ways to resolve debt: real growth exceeding real interest rates (growth-based debt resolution), inflation exceeding expectations (inflation-based debt resolution), and fiscal tightening (fiscal-based debt resolution). Under the above paths, both AI and gold will ultimately benefit.

2. The profit structure of A-share listed companies has fundamentally changed: the profit share of emerging industries has increased from 20% a decade ago to 40% currently, while traditional domestic demand (real estate, infrastructure, consumption) has decreased to 60%. This means that the traditional logic of "stocks are the barometer of the economy" needs to be revised; even if domestic demand is under pressure, as long as the 40% advanced manufacturing and overseas sectors maintain resilience, A-share ROE can still achieve cross-cycle stabilization and recovery.

3. Copper prices are expected to replicate gold's trend in early 2024. With global major destination inventories at historically low levels, coupled with the fiscal and monetary easing expected next year leading to a manufacturing rebound, copper prices have opened up new upward momentum after breaking the 10,000 yuan mark in the fourth quarter, which will become a core focus in recent asset allocation.

4. Although the issuance of actively managed equity public funds is sluggish, significant "deposit migration" has occurred among ultra-high-net-worth individuals. As fixed-income product yields have fallen below 2%, funds seeking 5%-10% annualized returns with controllable volatility are accelerating their entry through private equity all-weather, hedging, and index-enhanced strategies, which will be the most certain incremental fund pool in the market in 2025

5. The strong will always be strong is the "expression form" of economic structural transformation. Currently, the market capitalization of the top ten companies in the A-share market (excluding finance) accounts for only 17%, far lower than the 34% in the United States. Against the backdrop of the AI industrial revolution, the concentration of funds towards leading companies is not "crowded," but rather a necessary result of structural transformation as traditional economies no longer flourish, and liquidity gathers towards a few globally competitive technology leaders.

6. December to January is the most critical "buy the dip" period of the year. Looking ahead to 2026, since February to March is often the period of highest risk appetite known as "spring excitement," the pullback from December to January is a rare window for building positions. In the first year of ROE improvement, a bullish mindset should be maintained, especially for the Hang Seng Technology Index and domestic computing power, semiconductor, and other sectors that have undergone sufficient adjustments.

The following is the transcript of the speech:

First of all, I would like to thank Wall Street News for the invitation. At such a critical time point at the end of the year and the beginning of the new year, I would like to share my overall judgment on major asset classes for the new year, including some basic views on the A-share and Hong Kong stock equity markets.

Global Market Review: Performance Drivers of Technology and Resource Assets

Before making projections for 2026, I would like to briefly review the market performance over the past year. I have broken down the capital markets of several major countries and regions: the U.S. stock market, Germany, China's A-shares, as well as Japan and South Korea. For each market, I selected around ten major industries, where the blue bars represent performance contribution and the gray bars represent valuation contribution. As we all know, the core sources of stock price increases are primarily two: profit growth and valuation enhancement.

From the overall results, the industries with the highest gains are highly consistent across major markets, mainly concentrated in technology and resource sectors, especially non-ferrous metals. This is a very important common characteristic.

Next, I will analyze the technology sector separately and temporarily exclude the German market, as the correlation between AI and the German capital market is relatively weak. I will focus on China, the United States, Japan, and South Korea, as these countries are highly related to the AI industry. From the results, the rise of technology stocks over the past year has been overall healthy, primarily driven by profit growth rather than mere valuation expansion.

For example, in the U.S. market, the majority of the rise in the technology sector comes from profit contributions; in China's A-shares, the technology sector is also primarily driven by profit growth; in the Japanese market, the valuation contribution is relatively higher; while in South Korea, the rise of technology stocks is similarly driven by performance. Overall, despite the significant gains in technology stocks across countries, their foundation remains profit improvement.

Macro Core Logic: Dual Pricing of AI and Resources under Global Debt Issues

Here, there is a seemingly contradictory issue worth discussing: this year, technology and resources, especially gold, have almost simultaneously reached historical highs. Traditional views hold that gold is a non-yielding asset, representing a low-risk preference for hedging; while AI technology stocks represent a high optimism for future growth, indicating a very high risk appetite. Logically, these two types of assets seem to be in opposition to each other But if we look at this phenomenon from a higher level—namely, a core issue that major global economies are collectively facing: the debt problem—this phenomenon is no longer contradictory.

Whether it is the local government debt in China, the fiscal deficit in the United States, Japan's long-term high debt, or the debt issues in the Eurozone, debt has become the sharpest and most core contradiction for major economies. Theoretically, the paths to resolving debt are not complex: one is fiscal tightening, the second is rapid economic growth, and the third is inflation to dilute debt.

However, the reality is that fiscal tightening is almost unfeasible in the current political and social environment. Transitioning from luxury to frugality is far more difficult than moving from frugality to luxury; countries find it hard to actively shrink fiscal spending in the short term. In this context, the truly feasible paths are reduced to two: relying on economic growth and relying on inflation.

Against the backdrop of slowing global population growth, the core of economic growth can only depend on technological progress and improvements in total factor productivity, with the most important technological variable currently being AI. Meanwhile, diluting debt through inflation means that globally priced resource commodities will benefit in the long term, including gold, copper, and other base metals.

Therefore, the two core themes presented by global asset classes this year—AI and resources—seem contradictory but actually reflect the market's pricing of two paths for "how to solve the global debt problem," representing different manifestations of the same macro logic.

China's Market Transformation: From Domestic Demand Driven to "Going Global + Advanced Manufacturing"

Next, I would like to focus on the changes in the profit structure of the Chinese equity market. Many investors still tend to understand A-shares through traditional macro frameworks, treating the stock market as an "economic barometer," but this understanding has clearly failed in the past two to three years.

If we break down the profit structure of A-share listed companies, we find a very important change: in the past, about 80% of the profits of listed companies came from traditional domestic demand-related industries, while the share from emerging industries was only 20%; however, this structure has now undergone a substantial change, roughly evolving to 60% versus 40%.

The 60% that is still highly related to traditional domestic demand is indeed under pressure, but its downward speed has clearly slowed, playing more of a "supporting" role; while the other 40%, mainly from advanced manufacturing, technology, and industries related to going global, has significantly higher profit elasticity.

A very key indicator is the proportion of overseas income. Currently, the overall overseas income proportion of A-shares has exceeded 20% and is still rising. More importantly, the profit quality of this overseas income is significantly better than that of domestic business. In terms of gross profit margin, domestic business is roughly around 14%, while overseas business can reach 20% or even higher.

This means that even if domestic profits remain under pressure, as long as overseas demand remains relatively stable, the overall profitability of Chinese listed companies will not experience a systemic decline, which is also an important reason for the significant divergence between market performance and macro sentiment over the past year.

2025 Demand Summary: Manufacturing Recovery and the Mid-term Logic of Resource Commodities

Based on this, let's take another look at the judgment on profits in 2025. For the 60% traditional sectors, my judgment is that the downside risk is limited, but it is also difficult to see a rapid reversal; the real determinant of market resilience remains the performance of the 40% emerging industries, with the core variable being overseas demand.

So, will overseas demand show significant weakness? From the current perspective, I am not pessimistic.

First, the main export destination countries are generally in a relatively loose fiscal and monetary environment; second, global manufacturing inventories are at historically low levels, and once demand shows marginal improvement, restocking behavior will be quickly triggered; third, from the perspective of the political cycle, whether it is the current U.S. government or a potential new government, it is difficult to tolerate a significant economic slowdown before key election cycles.

Overall, the probability of a rebound in the global manufacturing PMI in 2025 is not low, which will provide positive support for China's export chain and resource products such as non-ferrous metals.

On this basis, let's take a look at resource products, especially copper and gold. Gold effectively broke through a decade-long range in the first quarter of 2024, subsequently entering a trend upward; while copper broke through a key price range in the fourth quarter of 2024, its trajectory bears a high similarity to the previous path of gold's breakout.

This is not driven by short-term sentiment, but is determined by multiple structural factors, including the recovery of the global manufacturing cycle, increased demand for electricity and power grids due to AI, and long-term constraints on resource supply. These factors indicate that the mid-term logic of resource prices has not changed.

Valuation and Capital: The Foundation of a "Slow Bull" Under the Expectation of ROE Recovery

Next, let's talk about valuation issues. A widely circulated experience in the market is that the valuation of A-shares often can only sustain an increase for one to two years, with a high probability of a significant correction in the third year. However, I believe this historical rule may not apply in the current environment.

There are three main reasons: First, the overall valuation repair in this round is very restrained and has not yet reached historical extremes; second, the regulatory authorities and long-term funds have significantly enhanced their control over market rhythm; third, 2025 is likely to be the first year of overall ROE recovery for A-shares.

Even without further increasing valuations, the current market valuation level still possesses a certain safety margin. From a horizontal comparison, the valuation ratio between China and the U.S. markets is still at levels around 2018, which is unreasonable in the current industrial competitive landscape.

So, where will the funds come from? I believe there are three relatively certain sources of incremental funds.

The first category is long-term funds represented by the national team, whose stability and continuity have been repeatedly verified; the second category is insurance funds, which have natural room for increasing equity allocation as premium scales grow; the third category is the relocation of deposits from high-net-worth individuals, as the demand for asset allocation with annualized returns of 5% to 10% and low volatility is rising against the backdrop of continuously declining yields on fixed-income assets.

As for the large-scale transfer of ordinary residents' deposits and the comprehensive return of foreign capital, there is still uncertainty. This also determines that this round of market trends is more likely to present as a "slow bull" rather than a rapidly rising one-sided bull market

Industry Trends and Rhythm: Layout Window Dominated by Supply Constraints

Finally, from an industrial perspective, why is it possible for certain industries to maintain strong performance for many years? The core reason lies in the fact that supply constraints are becoming the dominant variable again. Whether it is AI computing power, semiconductors, non-ferrous resources, or power infrastructure, the expansion on the supply side is significantly limited by real-world conditions, which is fundamentally different from the past cyclical environment that relied on rapid capacity expansion leading to internal competition.

From historical experience, as long as supply cannot be quickly released, the industrial trend will not easily come to an end.

In terms of rhythm judgment, looking back at previous bull markets, the main sectors typically experience adjustments of about 20 trading days, with a pullback of around 20%. Currently, whether it is the Hang Seng Tech Index, chips, or AI-related industrial chains, overall, they are close to or have even reached this adjustment range.

Therefore, from both time and space dimensions, December to January of the following year is a relatively noteworthy layout window.

The above are some core judgments I have regarding the equity market in 2025 and the main asset structure. Overall, this round of market movement is not built on emotions or short-term stimuli, but is driven by changes in profit structures, the evolution of industrial trends, and adjustments in capital structures.

It is important to emphasize that the current market uncertainty still exists, but unlike before, the key variables determining market direction have shifted. The importance of traditional macro indicators is declining, while industrial trends, global demand, and supply constraints are becoming more core pricing factors.

In this context, investment strategies themselves also need to be adjusted accordingly: rather than trying to grasp a single macro turning point, it is better to focus more on structural opportunities, participating patiently and controlling the rhythm in directions with relatively higher certainty.

My sharing today mainly focuses on the framework and logic level, hoping to provide some valuable insights for everyone in asset allocation and investment decisions in the new year.

That's all for my sharing, thank you all