UBS Raises 2026 A-Share Earnings Forecast to 11%

UBS Raises 2026 A-Share Earnings Forecast

UBS Securities raised its 2026 A-share earnings growth forecast from 8% to 11%, announced on May 11 during a media briefing. The revision reflects stronger-than-expected corporate profit recovery, particularly outside the financial sector, according to UBS Securities China equity strategy analyst Meng Lei.

International Investor Interest in Chinese Assets

From a global perspective, international market attention toward Chinese assets is intensifying. Fang Dongming, head of UBS Global Financial Markets for China, noted that amid rising global uncertainty and geopolitical volatility, Chinese assets’ risk-resistant and low-correlation characteristics are increasingly attractive. Fang highlighted that China’s capital market offers a complete industrial chain and diversified energy structure, positioning it as a global asset “safe harbor” for institutional investors seeking to reduce portfolio risk and diversify holdings.

International investors are currently focused on three key directions: AI innovation and high-tech industries, Chinese companies’ global expansion, and new opportunities emerging from “anti-involution” efforts (efforts to reduce wasteful internal competition).

Market Momentum Drivers

The Shanghai Composite Index reached an intraday high of 4229.58 points on May 11, marking its highest level since July 2, 2015. Meng Lei characterized this as one step in a series of integer milestones following sustained market upward breakthroughs, with strong positive momentum but still far from the ultimate target.

A-share market upward momentum stems from two main sources: first, corporate earnings recovery will be the core driver of market gains this year, with double-digit profit growth expected; second, amid abundant liquidity and rising strategic importance of the A-share market, continuous inflows of incremental funds will support stock valuation increases.

Earnings Recovery Led by Non-Financial Sector

Meng Lei explained that this year’s earnings recovery is primarily driven by the non-financial sector. In Q1, non-financial sector earnings grew 11.8% year-over-year, a significant increase from 0.8% for full-year 2025. Global AI development and self-sufficiency initiatives expanded demand, driving sustained high-speed growth in large-cap technology sector earnings. Progress in “anti-involution” efforts pushed Producer Price Index (PPI) from negative to positive territory and drove upstream sector profit recovery. Based on these developments, UBS revised its 2026 full A-share earnings forecast upward from 8% to 11%.

Valuation Support from Liquidity and Low Bond Yields

Abundant liquidity provides strong support for valuation increases. Meng Lei stated: “This year, with earnings growth, A-share market momentum has shifted from ‘liquidity-driven’ to ‘earnings plus liquidity’ dual-engine growth.” Although A-share absolute valuations have risen above historical averages, China’s government bond yields remain at historical lows of 1.7% to 1.8%, meaning equity risk premiums remain extremely high.

Meng Lei indicated that A-share valuations above historical mean levels still have upside room. As earnings materialize, valuations will naturally moderate, and current equity risk premiums are far from overheated or peak levels. Market sentiment has not reached elevated overall levels. With high-yield returns scarce and the “housing for living, not speculation” principle deeply embedded, household deposit reallocation is proceeding gradually and steadily, with medium- and long-term fund inflows continuing to support market valuation increases.

Forward Outlook and Style Allocation

Recent economic data supports continued A-share earnings growth. PPI’s shift from negative to positive and Q1 industrial enterprise profit growth of 15.5% year-over-year both indicate earnings recovery. Concurrently, CSI 300 index 2026 earnings growth consensus expectations have been continuously raised from 10.2% at year-end last year to 15.9% recently, reflecting bottom-up earnings forecast improvements.

Meng Lei expressed confidence in growth-style stocks based on the “slow bull” market trajectory. He also favors cyclical stocks given PPI and industrial profit recovery, and remains bullish on small-cap stocks amid abundant liquidity. However, Meng emphasized that due to net inflows into large-cap ETFs, relative performance between large and small caps will trend toward balance compared to last year. Overall, as corporate earnings growth cycles establish and domestic and international capital converges, China’s stock market is demonstrating strong long-term investment appeal.