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 “Fifteen-Five” plan, as China’s economy enters a new development stage.

Under the new circumstances, the voices of foreign investment banks bullish on China are continuous. Goldman Sachs recommends overweight positions in A-shares and Hong Kong stocks for 2026; JPMorgan Chase has upgraded the ratings of mainland China and Hong Kong markets to “Overweight”; UBS believes that policy support, improved corporate profits, and capital inflows could boost 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” of The Paper’s 2026 Market Outlook is titled “Spring Water Flows East,” capturing this sentiment. 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.

“Based on institutional expectations at the end of 2025, this is a year with relatively strong consensus over the past three years,” said Fang Han, Director of Stock Strategy Research at Harvest Fund, in an exclusive 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 disagreements that market participants should pay attention to.

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

The core logic driving market operation remains unchanged

“Whether it’s the ‘core assets’ rally or the ‘track investment’ craze, fundamentally, they reflect the increasing prominence of Beta characteristics in the A-share market structure,” Fang Han explained. He analyzed that, against China’s macro backdrop of moderate to high-speed 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 sectoral trends a necessary skill for high returns in each mid-term market cycle.

From “core assets,” “dual carbon revolution,” “domestication,” to the current “AI revolution,” “revaluation of strategic resources,” and “leading enterprises going global,” the terminology has evolved, but the fundamental pricing logic remains unchanged. Fang Han emphasized that, in a historical context where the stock market shows more structural rather than global features, the core logic driving market operation has always been about “industry trends aligned with the era’s background and structural transformation directions.”

However, he also notes 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 valuation of certain market segments driven by collective sentiment, followed by correction,” Fang Han said.

Two major market consensus points and three core disagreements

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

“Consensus is often formed because it tends to be internally coherent and widely recognized by the market,” Fang Han explained.

He summarized that the two major consensus points for 2026 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 increased household savings to enter the market, and more companies crossing profit cycle inflection points. The structural outlook is also rooted in the market’s own operation laws after two years of valuation repair, and a general understanding that high-quality development in capital markets discourages rapid and excessive leverage.

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

However, the stronger the consensus, the more likely overlooked reefs are. Fang Han points out three key disagreements in the current market:

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

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

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

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

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

First, the diffusion effect of new technological changes. This year, global AI investments are shifting from simply investing in AI to creating benefits (revenue or efficiency) through AI applications. He emphasizes that epic 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 pressures, such as lithium batteries, military industry, offshore wind, dairy and flavoring, and aerospace.

Third, high-probability pro-cycle assets. As the economy surpasses pressure peaks, sectors closely tied to macroeconomic prosperity—such as real estate, food and beverages, and discretionary consumption—are expected to gradually recover, increasing their win rate.

Three potential risks to watch

Under a “rationally optimistic” tone, Fang Han’s analysis of potential risks is 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, creating a notable conflict with the pursuit of stable, high-quality development.

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, valuations and sentiment in the A-share AI chain could face pressure.

Third, external macroeconomic shifts. If the US economy smoothly soft-lands and enters an expansion cycle driven by new fiscal stimulus, 2026 could mark the end of the current Fed rate-cut cycle. Such external changes could suppress global liquidity and pro-cycle assets in China.

(Source: The Paper)