[Introduction] Many insurance asset management institutions have spoken out to analyze the new changes in the allocation of patient capital in 2026

On December 19, in the roundtable discussion session "Patient Capital - New Trends in Insurance Fund Allocation" at the "2025 Capital Market Hong Kong Forum" hosted by China Fund News, the guests attending the meeting believed that the uncertainty in the global market has increased. Compared with 2025, asset allocation may change significantly in 2026. As long-term patient capital, insurance funds should pay attention to equity investment, but should not give up fixed income allocation. Risk appetite can be moderately reduced and more emphasis can be placed on assets with higher certainty. On the bond side, you can focus on the U.S. interest rate cut cycle and the impact of the mid-term elections; on the stock side, you need to focus on investment areas that have been significantly undervalued in the past two to three years, have solid fundamentals, or are at an industry turning point.

The following is a transcript of the roundtable discussion:

Considerations for asset allocation in major categories in 2026

Sun Hao: In 2026, what are your considerations in the direction of major asset allocation?

Zhang Yi: Looking forward to 2026 from the current point of time, the public market allocation may show two major changes.

First, overall public market investment returns next year may not be as good as this year. In terms of equity, in the past two years, the two major markets of China and the United States have experienced relatively sufficient valuation restoration. Currently, the U.S. market has turned to be profit-driven. It is expected that the mainland China and Hong Kong markets will gradually enter a profit-driven stage. In 2026, the overall rate of return of the equity market may decline.

Secondly, in the past two years, interest rates in the two major markets of China and the United States have declined. By arranging fixed income, investors not only obtain stable coupon income, but also obtain better capital gains. In the first half of 2026, the Federal Reserve may cut interest rates once or twice, and the market has fully anticipated this. The U.S. interest rate cutting cycle is coming to an end. Therefore, you can pay more attention to the coupon income of fixed income assets next year, because it may become more difficult to obtain capital gains income. In the second half of 2026, U.S. interest rates may rise due to the change of chairman of the Federal Reserve and Trump’s policy adjustments. At that point, capital gains returns on fixed income assets are at risk.

From an allocation perspective, institutions will generally over-allocate equity assets in 2025. Next year, institutions' overweighting of equity assets may be adjusted to neutral and gradually increase the proportion of fixed income assets.

In terms of alternative investments, we have a positive attitude towards AI, new technology, biopharmaceuticals and other fields. According to the “15th Five-Year Plan” recommendations, the country will invest heavily in the development of new productive forces, and insurance asset management institutions should also actively track and layout corresponding themes.

Yan Ligang: Insurance funds have the characteristics of long duration, large scale, and high security requirements.

Currently, the domestic ten-year government bond interest rate is at a historical low, the asset side and the liability side are significantly inverted, and the risk of interest rate loss is relatively high. Experience in overseas markets shows that the solution to this problem is the "three modernizations" strategy: high dividends, alternativeization and internationalization.

Specifically, in recent years, domestic high-dividend stocks have continued to outperform the market; alternative asset yields have dropped to lows and market demand is strong; internationalization has been achieved through QDII channels and other methods, seeking overseas high-dividend or high-coupon assets.

Under Hong Kong's RBC regulatory requirements, how overseas insurance funds can increase returns with low capital occupation is a key consideration. The general idea is to use fixed income as a base, increase excess returns through equity and alternative assets, and at the same time reduce RBC occupation. (Note: Risk-Based, the risk-based capital system, is a capital management framework implemented by the Hong Kong insurance industry starting from July 2024. Insurance companies are required to hold sufficient capital based on the risks they face, ensure financial stability, strengthen the protection of policyholders, and align with international standards)

In terms of fixed income, the U.S. Treasury yield curve may see major changes next year. If the Federal Reserve resumes its balance sheet expansion, the term premium may widen further, which will have a greater impact on the yields on fixed income investments.

From the perspective of credit bonds, large-scale investment in AI has driven an increase in liabilities, and credit bond issuance may hit a new high next year. In this context, investment-grade credit bond spreads may first expand and then contract.

In terms of stocks, the two major markets of China and the United States are the focus of global allocation. For the Chinese market, attention should be paid to the overall price index, such as the procyclical opportunities brought about by the PPI reversal. For the U.S. market, attention needs to be paid to the shift from valuation expansion to profit expansion. In addition, markets driven by AI infrastructure such as Vietnam deserve attention, as do markets such as Germany and France that benefit from financial optimization and the inflow of funds from the depreciation of the U.S. dollar.

Fixed income allocation direction

Sun Hao: What are your thoughts on fixed income allocation in 2026?

Zhou Chenggang: In 2026, the world is expected to continue to implement monetary and fiscal easing policies. Compared with 2024 and 2025, 2026 may be more about fiscal easing than monetary easing. At present, many people believe that the Fed's interest rate cut next year will be less than expected. We believe that monetary policy easing will gradually be replaced by fiscal policy. However, overall, the probability of a systemic recession or systemic financial risk is low.

In terms of asset classes, for patient capital, fixed income will still be an ideal investment choice in 2026.

Specifically, the income sources of fixed income mainly include interest rates and credit. Currently, credit spreads around the world, especially U.S. debt, are at historically low levels, which means that credit bonds are relatively expensive. Although systemic risks are low, local credit risks are rising. For example, credit spreads for companies such as Oracle have widened recently. Therefore, compared with 2025, fixed income investment will face greater challenges in 2026, and controlling the credit risk of individual companies will become an important task.

The layout of the yield curve is very important. Contrary to the general market opinion, we do not believe that the yield curve will become very steep, and the Fed may try its best to avoid excessive term premiums. We expect the yield curve to remain relatively flat. When investors make fixed-income investments in 2026, they should pay special attention to changes in the U.S. dollar yield curve and reasonably adjust the term structure.

Overall, though, there are still good opportunities for fixed income investment in 2026. However, the importance of credit risk control is highlighted. The active management capabilities of asset managers, especially the application of trading strategies, are particularly important. In the past two years, in terms of fixed income investments, investors could get good returns by simply buying and holding for a long time. But entering 2026, only by mastering the ability to actively manage and accurately select bonds can we hope to create better investment returns.

In 2026, we favor cash investments, such as currency funds or high-grade short-duration funds. These investments are highly safe and provide steady returns. In addition, we are also optimistic about US MBS (mortgage-backed securities backed by government agencies). Compared with credit bonds, MBS has smaller credit risk and wider interest spreads. It is expected that its risk-adjusted returns will be more ideal.

Zhang Yi: Regarding fixed income investment in 2026, I think the first half of the year and the second half of the year should be distinguished. What we are more worried about is the second half of the year. Although the U.S. dollar's rate-cutting cycle is coming to an end, the U.S. economy has shown strong resilience, which may put pressure on the market. In addition, Trump faces the midterm elections. In the 1970s, in order to seek re-election, Nixon put pressure on Arthur Burns, then chairman of the Federal Reserve. Demanding forced interest rate cuts when economic data is hot will eventually lead to hyperinflation in the U.S. economy. In view of this, we remain cautious on the market.

In the first half of 2026, we tend to allocate bonds with maturities of 5 to 10 years. When it comes to the choice of bond types, we are optimistic about high-grade credit bonds and MBS. The current credit spread curve is at a historically narrow level, and the risk of credit spread expansion needs to be guarded against. High-grade bonds and MBS not only provide better coupon yields, but also have higher liquidity, which will help us cope with the uncertainty in the second half of the year.

New changes in stock investment in 2026

Sun Hao: In terms of stock investment, what are your plans for 2026?

Yan Ligang: In the past two years, both US and Hong Kong stocks have experienced significant overall growth. From the current point of view, the risk-benefit ratio has changed significantly, and the original balance is being broken.

Entering 2026, risk identification is the top priority for long-term funds, including insurance funds. Since 2022, insurance funds have generally favored the "barbell strategy": one end uses high-dividend assets as the basis for income and defense, and the other end allocates technology stocks to obtain alpha returns.

It should be noted that the overall valuation of technology stocks is currently at a relatively high level. The price-to-earnings ratio of the technology sector in the S&P 500 Index is close to historical highs, and the overall valuation scale surrounding the ecological chain is also close to US$500 billion. Against this background, the market is concerned about whether AI-related capital expenditures can truly be converted into sustainable performance in the future. This is also the core variable we observe.

In terms of Hong Kong stocks, if domestic policies to promote consumption continue to work from the demand side, and PPI rebounds and drives the CPI of production materials to improve, the procyclical sector is expected to gain structural opportunities. In addition, after the real estate industry has experienced a long-term downturn, if it achieves substantial improvement at key policy nodes next year, its marginal changes are also worth tracking.

Next year, the "barbell strategy" will still have some validity. As for the timing of reorganization, long-term funds need to remain cautious and patient.

Zhou Chenggang: We focus on Hong Kong stocks, A shares and US stocks. In terms of Hong Kong stocks, the overall view is relatively optimistic, and they are more inclined to believe that the market has entered a "slow bull" evolution path.

From the perspective of investment themes, technology investment is a long-term theme that cannot be avoided and must be fully embraced.

There are different opinions in the market on whether there is a bubble in AI. Some people analyze it from the perspective of price-earnings ratio, but the price-earnings ratio changes dynamically. For long-term institutional investors, the significance of the discussion of whether there is a bubble does not lie in the conclusion, but in whether investment opportunities with real commercial value can be identified.

In actual operations, we avoid those targets that are hot in short-term speculation, have huge capital expenditures, but whose business models and revenue paths are not yet clear. For patient capital and long-term funds, the risk of this type of asset is relatively high. We prefer to choose companies with clear business logic, clear profit models and predictable cash flows.

From the perspective of allocation structure, on the one hand, the high dividend strategy has been repeatedly verified and is especially suitable for long-term funds. On the other hand, in addition to traditional high-dividend industries, we also pay attention to the "hidden champions" that are in niche fields and have global leadership positions in the domestic manufacturing industry. Such companies have solid business models and relatively reasonable valuations. Although they do not have a grand story line, they are often more suitable for long-term holdings. As for the technology theme itself, AI is not a single concept. There are structural opportunities in its upstream, midstream and downstream that are worth exploring. Therefore, whether there is a bubble in AI must be judged based on the company's industrial chain position and specific business model, and cannot be generalized.

Capturing opportunities in technology

Sun Hao: For a long time to come, technology will not only be an important engine of economic growth, but will also continue to become one of the most attractive core investment themes in the capital market. As a patient capital, how do you seize technology investment opportunities?

Gao Jian: The asset structure of Xinhua Asset Management (Hong Kong) is slightly different from that of some insurance asset management institutions in Hong Kong. Compared with the bond-based allocation model, we generally prefer an equity investment culture.

We attach great importance to investment in the technology sector. On the one hand, in the primary market, we are one of the major external institutional investors in DJI. Through the primary market, we are expected to capture the growth dividends of the technology industry earlier.

On the other hand, in the secondary market, we adopt the strategy of “selected tracks and in-depth research”. The key areas of focus include artificial intelligence, semiconductors, medicine and health (especially innovative drugs), and new energy industry chains, as well as new equipment and "hidden champion" companies.

From the perspective of asset allocation, the bottom position of the portfolio is still mainly high-dividend assets such as large finance and telecommunications. About 20% of the assets are used to gain Alpha income, focusing on strategic emerging industries.

Third, this year is an active year for IPOs in Hong Kong stocks. We cooperate with the national strategic layout through cornerstone and anchor investments, and have participated in projects including CATL, Hengrui Medicine, Cambridge Technology, Zijin Gold International, etc., and plan to participate in more projects that will be listed soon. In IPO investment, except for a few resource leaders, we generally still prefer strategic emerging industries. Faced with the rapid rise in valuations of some popular industries, we will also use different strategies to control valuation risks and seize technology growth opportunities from the three dimensions of primary market, secondary market and IPO.

Yan Ligang: We have always advocated “research-driven investment”. Under the theme of technology, bonds are an important part of our long-term layout, including US dollar bonds issued overseas by Chinese technology companies, as well as domestic and overseas corporate bonds related to the upstream and downstream industrial chains of technology companies and layout along the "One Belt, One Road", in which we have a lot of participation. Some of the “Belt and Road” related cases have been selected into the AFCA case database.

In terms of equity investment, before it attracts global attention in October 2022, we have already deployed the integrated circuit sector in advance based on research, covering related technology companies in the US and Hong Kong stocks. Subsequently, based on in-depth research, we further systematically configured the AI ​​upstream and downstream industry chains, including AI infrastructure, cloud service providers, and related targets that directly benefit from AI in downstream applications such as advertising.

Generally speaking, our investment in technology themes places more emphasis on a long-term perspective, with research as the core, and layout from both stocks and bonds.

Message for asset allocation in 2026

Sun Hao: Please briefly summarize the asset allocation and investment opportunities in 2026.

Yan Ligang: Pay attention to equity investment, while not giving up fixed-income allocation and maintaining confidence.

Zhang Yi: Moderately reduce risk appetite and pay more attention to assets with higher certainty.

Zhou Chenggang: Please trust professional investors.

Opinion: On the bond side, focus on the U.S. interest rate cut cycle and the impact of the mid-term elections; on the stock side, the Hong Kong market is generally neutral to optimistic, and structural opportunities still exist. In addition, you can also focus on investment areas that have been significantly undervalued in the past two to three years, but have solid fundamentals or are at an industry turning point.