Highlights: The defining macro shock of 2026 – the US-Iran conflict and the unprecedented disruption to global energy markets– has put China to a test. The country’s relative low dependency from Gulf crude in its energy structure and a largely coal and renewable based power mix have so far allowed its industrial base to absorb the shock with composure.

• Recent economic data broadly support the story of industrial resilience. GDP grew 5 per cent y-o-y in 1Q, stronger than expected, with industrial production and trade holding firm. PPI turned positive for the first time in 41 months. Thanks to strong AI demand and effects of “anti-involution” policies, selective reflation has taken hold in area of materials, industrial equipment and semiconductors even before the imported energy shock. This served as a margin tailwind for the industrial sector. That said, more cautious reading from consumer demand and contained CPI inflation, call for policy support to engineer a balanced recovery
• On-going earnings season offers investors an opportunity to refocus on the key themes that transcend the geopolitical noise. So far, more than half of A-share companies released 2025 earnings, with materials (+41.6 per cent) and information technology (+33.8 per cent) led the gain. Looking ahead, the market continues to expect a structural recovery in A-share earnings: consensus still implies 17.9 per cent y-o-y earnings growth in 2026e. Year-to-date, materials, energy and information technology sectors delivered most upward revisions
• Our China equity strategy continues to highlight the barbell approach, favouring materials that benefit from PPI normalisation and state-led capex expenditure. Technology remains as a structural theme. Considering persistent geopolitical uncertainty and potential stagflation risks, high-quality dividend stocks could inject stability and resilience to our portfolio