Output Demand Divergence
Fixed-Asset Investment is expected to be near 1.5% year-on-year after contraction in 2025 H2. Near-term gains are linked to equipment upgrades, while wider infrastructure spending is expected to feed through later. Infrastructure-led support is expected to appear from Q2 as record bond issuance is deployed. A broader lift from infrastructure is described as more likely in the second half of the year. Upcoming Chinese data is expected to show a two-speed economy, which suggests a pairs trading strategy could be effective. We see industrial production growing a solid 5.5% year-on-year while retail sales lag at a modest 3.0%. This divergence supports going long industrial and export-focused assets while taking short positions on those tied to domestic consumption. The industrial strength is largely fueled by a projected 21.8% surge in green technology exports, a trend that has kept commodity prices firm. For instance, three-month copper futures on the LME have consistently held above the $9,000 per tonne mark in early 2026 due to steady purchasing. This outlook favors call options on industrial metals and ETFs focused on China’s new energy sector, though we remain watchful of trade tensions that simmered with Western nations through 2025.Positioning For Two Speed China
Conversely, the weak domestic picture suggests continued pressure on consumer-facing companies. The modest retail sales forecast aligns with recent consumer confidence figures, which have struggled to break above the neutral 100-point level for over a year. This environment justifies holding put options on consumer discretionary indices and companies exposed to China’s real estate sector. Fixed-asset investment is expected to show a slight 1.5% gain, marking a tentative stabilization after the deep contractions we witnessed in the second half of 2025. However, any significant boost from infrastructure spending is unlikely before the second quarter, as funds from record government bond issuance are only now being deployed. This historical pattern, similar to the delayed impact of stimulus seen after 2015, implies that long positions on construction and materials stocks may be premature. Create your live VT Markets account and start trading now.
Start trading now – Click here to create your real VT Markets account
