Rongtong Fund's Li Jin: The upward logic of the stock market remains intact; the three major driving variables are the key observations

【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, international investment banks continue to be bullish on China. 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 earnings, and capital inflows could drive up 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” market outlook for 2026, titled “Spring Water Flows East,” also conveys 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.

“In 2026, I think there is still some room for stock market growth. The core drivers of the rise are still in place, and valuations in the growth sectors are not high,” said Li Jin, Deputy General Manager of Equity Investment at Rongtong Fund and Manager of Rongtong Industry Trends Select Fund, during a guest appearance on the “Spring Water Flows East—‘Chief Connection’ 2026 Market Outlook” special on February 18. He believes the current market temperature is neutral to slightly hot, but overall still within rational bounds.

Li Jin pointed out that this upward trend is unlikely to have ended, driven mainly by policy guidance, liquidity environment, and industrial trends—these are also key variables for future market observation.

Regarding specific directions, Li Jin remains focused on computing power, believing that some raw materials, chips, and storage sectors have significant potential for earnings surprises. Meanwhile, he sees the independent energy storage sector entering a rapid growth phase, with sustained growth momentum expected in the coming years.

He is not pessimistic about consumer and innovative drug sectors. He believes that after prior adjustments, valuation pressures have been digested, and these sectors are gradually entering a deployable range.

In 2025, Li Jin managed four products, two of which doubled in net value within the year, with Rongtong Industry Trends leading as the top stock fund of 2025.

Below is an edited transcript of the interview with Li Jin by Pengpai News:

Pengpai News: Looking back at 2025, the A-share market saw significant gains. In your view, what is the core logic driving this market upward?

Li Jin: Data shows that the increase in A-shares in 2025 was driven by both valuation expansion and earnings growth, each contributing about half.

Overall, the ChiNext Board, with a growth style focus, had greater valuation and earnings elasticity, achieving larger gains.

The two sectors with the biggest gains in 2025 were non-ferrous metals and communications. The main companies in these sectors experienced high earnings growth, supported by solid fundamentals, and their leading firms’ valuations remained relatively low.

Therefore, the 2025 stock market rally was a healthy upward trend.

Pengpai News: In your recent quarterly report, you mentioned an observation: “Current investor pessimism about the real estate market and retail investors’ caution about entering the stock market indirectly indicate that the market remains rational.” Does this mean, within your framework, that the market has not yet entered an overheating phase?

Li Jin: The most important indicator is the valuation level. Currently, A-shares are not highly valued.

In a major market rally, the key is to look at the technology growth sectors.

The representative index is the ChiNext Index, which still trades at a valuation slightly below its 15-year historical median, not overheated. In contrast, the valuations of the CSI 300 and SSE Composite Index are relatively high historically, mainly because banking, non-ferrous metals, insurance, and dividend-paying sectors have seen their stock prices break new highs.

Another indicator is retail investor enthusiasm. The irrational part mainly involves a sharp increase in trading volume and high activity in certain thematic sectors.

By the end of 2025, market turnover was not overly active. However, after the start of 2026, trading volume rapidly expanded from 2 trillion to 3 trillion yuan, with some early-stage industries surging significantly, signaling some irrational behaviors.

The market temperature is currently neutral to slightly hot, but overall still within rational bounds.

Pengpai News: You have publicly stated that “this upward trend is unlikely to have ended,” but also noted in your quarterly report that “based on past experience, future trends are more about habit than rationality.” What is the core logic supporting your view that the trend will continue?

Li Jin: I believe it hasn’t ended because the three main drivers of this rally are still in place, and these are also the key points for future observation: policy, liquidity, and industry trends.

First, on policy: both domestic and overseas policies are very friendly to the stock market. The market has become an important lever for boosting consumption and consumer confidence, aiming to stimulate spending and stabilize the economy. All these are positive supports for the real economy and the stock market.

Second, liquidity: the Federal Reserve remains in a rate-cutting cycle, with an expected rate of around 3% in 2026; domestic liquidity is also ample, with rate cuts and reserve requirement reductions on the horizon.

Third, industry trends are continuing. Downstream demand for AI is rising rapidly, and the valuations of leading companies are still relatively low. The industry growth cycle is still in its early stages.

Regarding stock market outlook, future trends mainly depend on tracking these three core variables. If any of these change significantly, adjustments to the view may be necessary.

Pengpai News: The December 2025 Central Economic Work Conference emphasized “stability with progress” and “stimulating endogenous motivation.” How do you think this policy tone will impact the market structure (sector rotation) and investment styles (growth/value) of A-shares in 2026?

Li Jin: Stimulating endogenous motivation in China’s economy benefits from two main industry directions: one is technological innovation, and the other is stimulating domestic demand.

Technological innovation is a key driver for unleashing social endogenous power and remains the main theme of the market.

As a core track of technological competition, the artificial intelligence industry is shaping the future decades’ international landscape and industrial upgrade paths. Countries are increasing their investments, which is inevitable. Currently, AI is still in the “big infrastructure” stage, with significant capital expenditure, directly benefiting the entire AI hardware supply chain—from GPUs and optical modules to PCBs.

Meanwhile, industry development follows a clear rhythm: hardware leads, applications follow. In applications, AI has begun generating substantial revenue in cloud computing, AI advertising, and marketing, and is driving productivity changes in programming and other fields. In autonomous driving, driverless taxis without safety operators are expected to gradually operate in the US and China in 2026. Overseas, next-generation robots will enter mass production. Overall, AI applications are entering a rapid explosion phase.

Besides technological innovation, stimulating domestic demand is another way to unleash endogenous power. Opportunities abound in consumer substitution and outbound consumption.

Since December 2025, we’ve observed a decline in second-hand housing listings, rising transaction volumes, and some cities seeing prices rebound. If real estate sales stabilize and recover, traditional consumption sectors may also see an uplift.

The policy tone of “stimulating endogenous motivation” will shift A-share investment styles from “growth dominates” in 2025 to a “growth and value resonance” approach, leading to more balanced investment opportunities in 2026.

Pengpai News: How do you foresee the divergence in the prosperity of various segments along the AI industry chain in 2026? Besides the currently heavily held optical modules, which other sub-sectors do you see as having potential for unexpected growth, and what are the key catalysts?

Li Jin: The AI sector has always had differing opinions, but disagreement is healthy—it indicates expectations are not uniform.

I believe that in 2026, investment in AI computing power will show clear differentiation. Last year’s sharp sector rally has brought most stocks’ valuations to reasonable levels.

From the downstream demand side, the industry’s growth rate in 2026 is expected to slow compared to last year, meaning some stocks relying on overall growth may have limited performance upside, and their valuation centers could gradually decline due to slower capital expenditure growth. Therefore, the focus should be on sub-sectors where demand growth significantly exceeds industry average—what we call inflation segments.

Apart from optical modules, two main inflation segments in computing power are:

First, upstream raw materials and chips: production expansion is difficult, with long cycles, leading to supply shortages in the short term.

Second, storage: a clear supply-demand imbalance is emerging. As applications explode, the importance of AI’s memory capacity becomes evident. Once AI agents are widely deployed, storage chip prices—such as DRAM and NAND—have surged, with prices more than doubling.

These two directions have strong potential for earnings surprises.

Pengpai News: You position energy storage as a “second growth point.” Currently, the energy storage industry is in its explosive early stage. From an investment perspective, which core link in the industry chain do you favor most? How do you evaluate the future growth rate and sustainability of this industry, and what are the key variables?

Li Jin: Driven by capacity electricity prices and peak-valley spreads, domestic independent energy storage projects are now comparable to overseas, entering a new stage of commercialization. I am optimistic about the industry’s sustained high-speed growth in the coming years.

Domestic energy storage faces higher requirements for lifecycle management. Once profitability opens up, independent energy storage units—unlike previous heavily regulated policies—have trading attributes (frequency regulation, spot trading), requiring a lifespan of over ten years and higher equipment standards. Transitioning from policy-driven to operational units, profitability prospects improve, increasing recognition for system integrators and cell manufacturers, especially those with higher valuation premiums.

Regarding the sustainability of growth over the next few years, the key long-term issue is whether the “abandonment of wind and solar” problem in new energy development can be solved. If peak-valley price spreads continue to narrow, energy storage profitability will decline, impacting demand. However, in the near term, demand for energy storage is expected to remain high.

In the short term, close attention should be paid to upstream lithium carbonate prices. Recent sharp increases have raised battery cell costs, causing some industry players to hold back on storage project development, temporarily dampening demand. As lithium carbonate prices stabilize, projects will restart.

While industry demand may fluctuate in the short term, the long-term growth trend remains intact.

Pengpai News: In the second half of 2025, you reduced holdings in new consumer sectors and innovative drugs, citing overvaluation or short-term positive effects being priced in. At this point, do you think these sectors are fully overvalued? Under what specific conditions or signals would you consider increasing your allocation again to these long-term favored sectors?

Li Jin: I reduced holdings in new consumption in Q2 2025 and in innovative drugs in Q3, mainly because the valuations of leading companies in these sectors became quite high, with some valuation premiums already priced in, and some companies’ earnings falling short of expectations.

However, after a half-year correction, these sectors are now more suitable for gradual reallocation. For example, some stocks in new consumption have fallen back to a PE of around 20 times this year, with solid earnings growth.

Similarly, for innovative drugs, the rapid rise before Q3 has slowed, with many stocks down over 30%. Yet, their growth logic remains intact. China’s innovative drug exports now account for nearly 40% of the global total, and the number of clinical trials is among the top worldwide. Several blockbuster drugs have gained recognition from overseas counterparts, with products in late-stage clinical development and licensing agreements worth billions of dollars.

However, compared to international giants, Chinese innovative drug companies still have relatively small market caps. Therefore, we can look for some globally competitive innovative drug firms with strong product pipelines, especially those with better overseas licensing or sales performance than expected.

I remain optimistic about the future prospects of consumer and innovative drug sectors.

Pengpai News: Besides closely monitoring known industry trends, how do you plan to build a forward-looking research system to identify early opportunities in the “0 to 1” or “1 to N” critical phases? Before including these opportunities in your portfolio, what key verification signals do you prioritize?

Li Jin: Researching emerging industries is indeed more challenging. For us, the key is to judge whether an industry is approaching a true outbreak—crossing the critical point of development.

Before reaching that point, it’s a theme-driven “0-1” stage, where performance realization is unlikely. After crossing the threshold, stock prices tend to stabilize because they are driven by earnings.

Determining whether the industry has reached this critical point involves assessing whether it has the capacity for rapid expansion. For example, photovoltaic panels and new energy vehicles have become economically viable, and large AI models are demonstrating reasoning and judgment capabilities. The core question is whether the industry has the foundation for rapid volume growth and whether it has crossed the development threshold.

Key signals include: Is commercial aerospace’s rocket launch economically viable? Are autonomous vehicles (robotaxis) more economical than traditional taxis? Will humanoid robots reach commercial sales? These are the main verification signals.

In practice, we also closely track product validation, customer orders, and other fundamental data.

Pengpai News: You advocate a “balanced growth track allocation + focus on leading stocks + contrarian dynamic adjustment” portfolio management approach. How do you balance the conflict between industry diversification and stock concentration? How do you avoid “fish tail” market phases in certain sectors?

Li Jin: Industry diversification in a portfolio aims primarily to control drawdowns and volatility. When asset drivers differ, the portfolio tends to show orderly rises and falls, and can switch flexibly to more cost-effective sectors during bubbles.

Sector concentration aims to capture excess returns from rapid industry outbreaks. Without heavy positions in sectors at the outbreak stage, the portfolio’s growth tends to be slow.

Stock concentration is based on the long-term industry logic: only a few companies with sustained competitive advantages can survive cycles, promote industry progress, and generate long-term excess profits. Therefore, stock selection must focus on quality—willing to pay reasonable or even premium valuations for core companies, rather than buying second- or third-tier firms at low prices.

The seemingly contradictory strategies of industry balance and concentration are actually unified at the stock level. Overweighting a sector depends on whether enough high-potential, high-quality companies can be found within it. The proportion of industry allocation should not come at the expense of lowering stock selection standards. Cross-sector comparison helps avoid risks of sector late-stage declines.

When managing assets across different types and cycle positions, natural comparisons of valuation and potential are made. When a sector’s valuation bubbles, reducing positions and shifting to undervalued areas helps avoid “fish tail” phases. If most holdings are overvalued, shifting to defensive assets or reducing positions can help mitigate systemic risks.

Pengpai News: For ordinary investors aiming to seize growth opportunities in 2026 while managing risks, what specific allocation strategies would you recommend?

Li Jin: I believe that in 2026, the stock market still has some upside, with the main drivers continuing, and valuations in growth sectors are not high.

For individual investors wanting to participate in market gains, there are two main ways: buying funds or selecting stocks themselves. For funds, focus on index funds with valuations below their historical median; alternatively, if you have a good understanding of certain fund managers, you can choose their active funds. Investing in active funds essentially involves selecting a fund manager, so it’s important to understand their investment framework, style, and capabilities.

When choosing stocks, focus on companies with clear competitive advantages, and adopt a long-term holding perspective—study their business models and core barriers.

In any case, it’s advisable to always research leading companies within an industry. Second-tier companies are still viable, but they lack the long-term competitive edge of leaders. Only companies with core competitiveness can sustain excess profits over time.

Pengpai News: Looking ahead to 2026, what do you see as the main investment risks? Specifically, for your heavily held AI sector, is the core risk whether growth performance will meet expectations?

Li Jin: On the macro level, key factors are policy guidance and liquidity trends, which are crucial for stock valuations.

For AI, the main investment opportunities are in computing power. Industry-wise, it’s important to monitor whether downstream demand growth aligns with expectations—such as token call volume maintaining rapid growth; corporate capital expenditure continuing; and large models progressing steadily. If these core drivers change, we should be alert.