2026 A-share Cycle Reversal Strategy: Layout Analysis Focused on Profit Improvement

Against the backdrop of the current market’s relatively optimistic overall expectations for 2026 and increasing difficulty in valuation uplift, the cycle reversal strategy centered on ‘corporate profit improvement’ remains sustainable, but precise screening must be done under the disciplines of ‘low-position layout’ and ‘strict volatility control’—detailed analysis is as follows:

1. Valuation and Liquidity
   : The static P/E ratio of CSI 300 is about 14x, and Wind All A is about 17x. Although higher than the ‘undervaluation zone’, it is still in the neutral to low range since 2010; overall valuation expansion needs profit verification as support [1].
2. Capital Rhythm and Profit Expectations
   : The policy level maintains ‘moderate easing’, and residents and active funds have shown a trend of reallocating to equity assets, corresponding to A-shares’ overall liquidity still having support [2].
3. Inflation and Demand Repair
   : CPI/PPI are expected to rise moderately in 2026 (approximately 0.5-0.7% and -0.3% to 0% respectively). Service prices and consumption such as medical care and tourism will lead price repair, reflecting the sustained positive feedback of ‘price reform + anti-involution’ on the profit side [2][3].

Combined with index and sector data, tracks with relatively reasonable market capitalization and where funds are still looking for profit realization indicate that valuation expansion still needs profit as a foundation. At this time, it is more suitable to make differentiated layouts around profit improvement [0].

1. Confirmation of Profit Improvement
   : Currently, profit-driven reversal opportunities mainly come from three main lines: service consumption, industries related to CPI recovery, and anti-involution assets—these directions have been implemented in both policy and demand sides (e.g., continuous upgrading of service prices, tourism consumption, medical services [2][3]), which can support profit resilience.
2. Style of Cycle Reversal
   : The market is switching from ‘valuation-driven’ to ‘profit elasticity’; funds are more favoring cyclical and structural varieties with a foundation for performance realization. Therefore, entering at low points and patiently waiting for performance improvement to materialize can still create excess returns [2][3].
3. Style Rotation Window
   : If the previous concentration on sectors like gold, rare earths, and aviation realizes profit recovery, it can provide capital and confidence entry points for the next stage of cycle reversal; however, as liquidity tightens, the strategy needs to better control leverage and volatility to counter the difficulty of valuation expansion [0].

1. Service Consumption
   : Driven by policy stimulus and consumption upgrading, industries such as hotels, cultural tourism, and aviation have seen stepwise improvement in demand, with market share concentrating on leading players; performance reversal is expected. Attention should be paid to segmented tracks like high-end/differentiated vacations, spring and autumn holidays, and new consumption tourism, and low-volatility targets should be selected for batch layout [2][3].
2. CPI Recovery Related
   : Anti-involution policies have alleviated low-price competition; price expectations for pork, medical care, tourism, etc., have improved, directly boosting profit margins. Combined with RMB appreciation and falling oil prices, aviation and papermaking, which are highly dependent on imports and have high profit elasticity, have stronger moats [3].
3. Anti-involution Related Assets
   : Hold onto industry leaders (e.g., core airlines in aviation and shipping, high-quality hotel operators), and rely on supply-side rectification and recovery of pricing power to achieve profit return. The cycle reversal strategy can add positions in batches at low levels under these ‘structural high returns’ to avoid valuation bubbles.

1. Valuation Convergence Risk
   : If overall market liquidity deteriorates or expectations fail, cycle reversal sectors may adjust in the short term; therefore, stop-loss or phased reduction of positions must be set in combination with trading volume/capital flow.
2. Policy and External Shocks
   : If anti-involution and service consumption stimulus policies slow down, short-term profit elasticity will weaken; at the same time, oil prices, exchange rates, and geopolitical events may still affect the cost side of aviation, etc., which need to be tracked dynamically.
3. Portfolio Suggestions
   : Adhere to the principle of ‘low-position layout + strict volatility control’, hold main track targets in layers, reasonably match defensive assets (low-valuation, stable cash flow consumer services or large consumption), and maintain real-time tracking of profit inflection points (e.g., order/load factor/price recovery, etc.).

In 2026, when valuations are no longer significantly low but profit expectations are still improving, it is difficult to sustain excess returns relying solely on valuation uplift. Focusing on ‘real profit improvement’ for cycle reversal, combining the three main lines of service consumption, CPI recovery, and anti-involution, gradually adding positions from low to mid-levels, and cooperating with strict volatility control and risk hedging can still yield excess returns in market structural rotation. However, attention should be paid to valuation expansion constraints and macro variable disturbances, maintaining the synergy between ‘profit is king’ and ‘disciplined investment’.

[0] Jinling API Data
[1] WallstreetCN - 《Shanghai Composite Index’s Seven Consecutive Rises: Has the A-share Cross-Year Spring Rally Started?》(https://wallstreetcn.com/articles/3762084)
[2] Sina Finance - 《Breaking the Deadlock for Innovation, Moving Towards New Balance——2026 Annual Macro Strategy Outlook (Fundamentals Chapter)》(https://finance.sina.com.cn/stock/marketresearch/2025-12-22/doc-inhcsexf4554863.shtml)
[3] Jiemian News - 《Top 10 Chiefs’ View on 2026 China Economy: GDP Growth Rate May Be Around 5.0%》(https://www.jiemian.com/article/13785194.html)