Citic Securities Qiu Xiang: Rising Corporate Profit Margins Are Key to Sustained Bull Market in A-Shares in the Next Phase

Why is profit margin recovery under high valuations a key to a bull market?

Reporter Sun Ruxiang and Xia Xin, Beijing

“Q2 is a crucial window for rebuilding confidence on the path of a slow bull market in A-shares, and the long-term stabilization and rebound of corporate profit margins are essential prerequisites for the continuation of the bull market,” said Qi Xiang, Chief A-Share Strategist at CITIC Securities, at the 2026 Spring Capital Market Forum on March 19.

Qi Xiang believes that whether at the index level, valuation level, or macro liquidity level, spring in the A-share market is at a critical juncture: the monthly chart of the Shanghai Composite Index is at a pressure line that has been in place for over 20 years since October 2007. Whether it stabilizes or pulls back will greatly influence investor confidence; after a year and a half of a bull market, valuation percentiles of major broad-based indices have moved up a level, with most broad-based valuation percentiles above the 80th percentile over the past 10 years, indicating limited revaluation potential on the surface; the Middle East conflict has caused significant negative shocks to global supply chains and financial conditions, suppressing risk appetite.

However, high prices, expensive valuations, and elevated positions are static phenomena. Many industries still have profit margins at historic lows. The coexistence of “expensive” valuations and “low” profits is a prominent structural feature of this round of market.

“To push the index higher in the future, valuation alone is not enough. The core depends on whether China’s advantageous manufacturing sector can systematically convert its market share advantage into a long-term profit margin increase. If validated, the market perception of ‘short bull, long bear’ in A-shares over the past 20 years will be reshaped,” Qi Xiang said. One of the most important investment clues this year is to go long on PPI and CPI.

Qi Xiang believes that the rapid rise in oil prices provides an opportunity to test China’s advantageous manufacturing sector’s pricing power. From a style perspective, the Middle East conflict is a catalyst for style switching this year. Against the backdrop of rising global costs and weakening financial conditions, low valuation and pricing power are two very important factors. From an industry trend perspective, code expansion and physical scarcity in China manifest as an increase in the pricing power of advantageous manufacturing industries. Accelerated disruptive innovation in AI and disruptions in global energy supply chains are strengthening this trend.

In terms of allocation, Qi Xiang recommends firmly focusing on revaluing China’s advantageous manufacturing pricing power (chemical, non-ferrous metals, electrical equipment, new energy), with price increases remaining a core trading signal, while also increasing exposure to low-valuation factors (insurance, securities firms, electricity).

(Edited by Xia Xin, Reviewed by Li Huimin, Proofread by Wan Ling)