BNP Paribas said China’s GDP growth rose to 5.0% year-on-year in Q1 2026, up from 4.5% in Q4 2025, after expanding at 5% across 2025 as a whole. The bank expects growth to slow moderately through 2026, describing a K-shaped trajectory in which exports remain dynamic while domestic demand stays sluggish and the property sector continues to face stress.
The lender expects authorities to keep fiscal and monetary policy supportive, though measures may remain modest as the global backdrop becomes less supportive. Deflationary pressures are forecast to ease in 2026, supported by higher global energy prices and anti-involution measures introduced by policymakers.
Derivative Strategies In A Mixed Economic Landscape
As of today, June 2, 2026, we see the economic picture for China as mixed, which presents clear opportunities for derivative traders. The strong 5.0% growth in the first quarter is now in the rearview mirror, and we are preparing for the expected moderate slowdown. We believe buying put options on broad market indices, like the CSI 300 ETF, is a sensible way to hedge against a potential loss of momentum through the third quarter.
The K-shaped trajectory is the most important factor for our strategy in the coming weeks. May 2026 export data showed a surprising 7.1% jump, driven by global demand for electric vehicles, which tells us to be bullish on specific manufacturing sectors. We are therefore looking to buy call options on select export-oriented industrial and tech stocks while simultaneously buying puts on real estate ETFs, as new home sales continue to be sluggish.
Modest Policy Support And Currency Opportunities
We are not anticipating a large-scale government stimulus, as policy support is described as supportive but modest. This reinforces our view that a broad market rally is unlikely, and sector selection is critical. This environment of limited central bank action could keep volatility in check, making strategies like selling out-of-the-money call spreads on major indices attractive for income generation.
The easing deflationary pressures, partly due to higher energy prices, should offer some support for corporate profits and the yuan. This reduces the likelihood of aggressive interest rate cuts by the People’s Bank of China. We can express this view through currency derivatives, such as selling USD/CNH call options, to bet that the yuan will not weaken significantly from here.
