A-share market profitability is showing clear signs of accelerated recovery, with the first half of 2026 delivering robust earnings growth across most sectors. The cumulative net profit attributable to shareholders for all A-shares and all A-shares excluding financials and the two oil giants increased by 19.4% and 19.8% year-on-year respectively, while single-quarter growth for Q2 reached a striking 29.4% and 23.3%. This earnings momentum is accompanied by a steady climb in return on equity, suggesting the fundamentals are solidifying as a key market anchor.

Looking at the breakdown across exchanges, both the Main Board and ChiNext recorded synchronous improvements in revenue and profit, while the STAR Market, despite some moderation from its Q1 peak, continues to post triple-digit profit growth. From a style perspective, large, mid, and small-cap segments all showed significant earnings repair, with mid-cap companies leading the improvement. The return on equity excluding non-recurring items for all A-shares climbed to 7.6% in Q2 2026, up 0.5 percentage points from Q1, with the pace of recovery accelerating after a prolonged downturn since mid-2021.

The high-景气sectors of AI computing hardware and non-ferrous metals remain the standout performers in the 2026 interim reports. Within the TMT complex, electronics profits accelerated to a 195.1% growth rate, computers maintained a healthy 57.6% pace, and media swung back to positive territory. Non-ferrous metals continue to dominate with a 106.6% profit growth rate, albeit slightly moderated from Q1 as commodity prices settled into a higher trading range. Beyond these primary drivers, the earnings recovery is now broadening across multiple fronts, with basic chemicals, petroleum, coal, and financial sectors all showing marked improvements.

The strategic outlook for the second half of 2026 calls for a shift from an aggressive "attack-first" posture to a more balanced "barbell" configuration that combines offense with defense. Earnings momentum remains the market's central pricing yardstick, justifying the continued weighting toward high-clarity growth sectors. However, given the recent rapid valuation expansion in high-beta segments and lingering external macro uncertainties, portfolio construction should emphasize four core themes: 1) technology growth driven by the full AI computing chain from upstream chips to downstream applications; 2) resource-based plays benefiting from supply rigidity and structural demand from global manufacturing recovery; 3) export-oriented manufacturing capitalizing on global infrastructure expansion and energy transition; and 4) defensive assets with strong cash flows, stable dividends, and attractive valuations to anchor portfolio volatility.

The AI industrial wave is opening a fresh technology-driven growth cycle. Within this cycle, upstream core hardware includes computing chips, optical modules, storage chips, and supporting components like PCBs and liquid cooling systems. The midstream segment covers AI servers, data centers, and computing rental services, while downstream applications span large models, autonomous driving, embodied intelligence, and associated use cases. The sector is experiencing systematic demand expansion across the entire value chain, with hardware companies seeing the earliest revenue recognition and the strongest earnings certainty.

Resource-oriented investments focus on three sub-sectors: industrial metals such as copper and aluminum, which are benefiting from grid upgrades and AI infrastructure demand; energy metals including lithium, cobalt, and nickel, which are poised for valuation recovery after price stabilization; and minor metals like rare earths and tungsten, which are undergoing value re-rating driven by strategic resource controls and high-end material applications. The non-ferrous metals sector demonstrated robust fundamentals in the first half, with revenue up 31.8% to 2.41 trillion yuan and net profits surging 106.6% to 196.7 billion yuan.

The export manufacturing theme leverages China's comprehensive industrial chain cost advantages, targeting sectors with resilient overseas demand and global infrastructure expansion. Mechanical equipment, particularly engineering machinery and industrial robots, is riding the Belt and Road momentum, while wind power equipment and energy storage systems benefit from the global energy transformation. Power transmission and distribution equipment exports are also growing strongly, supported by aging overseas grid infrastructure and renewable energy integration needs, though geopolitical and trade policy risks warrant continued attention.

The defensive allocation focuses on assets with ample operating cash flows, stable dividend distributions, and valuation safety margins, including utilities, large central state-owned enterprises, and companies with natural monopoly characteristics. While these assets offer limited short-term earnings elasticity, their strong anti-cyclical attributes help smooth portfolio volatility during periods of high-景气sector corrections or style rotations, achieving a dynamic rebalancing between returns and risk.

Several risk factors warrant monitoring going forward, including the potential for policy shifts exceeding expectations, macroeconomic environmental changes beyond current forecasts, and increased short-term market volatility that could impact the pace and trajectory of the ongoing earnings recovery.