CICC urges shift to dividend payers as China growth stocks falter

CICC's recommendation signals an ongoing shift away from high-growth equities on ChiNext and STAR toward dividend stocks, which are often found in banks, utilities, energy and telecoms. Even if the overall market remains turbulent, that could bolster relative performance for dividend indexes. Most of the catalysts come from outside China: US inflation numbers and Federal Reserve guidance this week relate to the offshore liquidity concerns that CICC highlights, while rising tensions in the Middle East and questions about AI expenditure would hit the technology side hardest. A robust period of global chip profits could rekindle interest in growth names and reduce the rationale for a defensive stance.

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Earlier stories:

• The PBOC is predicted to set the USD/CNY reference rate at 6.6977, according to a Reuters estimate.
• Weeeknd reports that the EU plans an annual cap of 350,000 on Chinese hybrids after Beijing agreed to a 16-point deal.

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Following a first half driven by technology, CICC advises Chinese investors to balance growth stocks with more stable holdings.

CICC summarised its view in the following points:

• According to CICC, A-share technology growth stocks rose in the first half of 2026, fuelled by the AI supply chain and high-end manufacturing.
• Since July, three factors—negative stories about the global AI chain, expectations of tighter offshore liquidity, and Middle East risks—have caused a significant pullback in sectors that were previously strong.
• Given higher volatility in growth stocks and weaker risk appetite, CICC argues that the rationale for dividend assets warrants a fresh assessment.
• CICC expects a "technology plus dividends" barbell allocation to become more prominent, as it balances earnings growth, shareholder returns, and stability.
• CICC prefers tech firms with clear industry trends, durable advantages, and proven profitability, along with dividend stocks that have stable cash flow, sustainable dividends, and reasonable valuations.

China International Capital Corp believes that investors in China's mainland equity market should focus more on a "tech plus dividends" barbell strategy following a steep decline in growth stocks since July, which revealed the dangers of a portfolio too concentrated in technology.

A barbell strategy puts investments at opposite ends of the risk scale instead of in the middle. Here, it means high-growth tech stocks on one side and stable dividend stocks on the other. The goal is to profit from structural growth while using dividends to soften losses during market turbulence.

In a research report, CICC noted that A-share tech growth stocks performed well in the first half of 2026, supported by robust conditions in the AI supply chain and high-end manufacturing, maintaining a structural uptrend. But since July, three forces have converged to cause a sharp downturn in those formerly robust sectors: growing negative sentiment about the global AI chain, anticipation of tighter foreign liquidity, and heightened geopolitical tension in the Middle East.

The liquidity worry stems from the global interest rate environment. The Fed lifted rates in September, and markets are assessing the possibility of more hikes, which makes this week's US inflation figures and comments from Fed Chair Kevin Warsh also important for Chinese stocks.

Given elevated volatility in growth stocks and reduced risk appetite, CICC stated that the comparative attractiveness of dividend assets merits reconsideration. It contended that in a setting where aggregate growth is constrained but some areas of strong structural growth exist, and where risk mood shifts abruptly, pairing technology with dividends provides a method to balance potential earnings growth, cash returns to shareholders, and portfolio steadiness.

For execution, CICC suggests concentrating on tech firms that have clear industry trends, lasting competitive edges, and a track record of profitability. On the dividend front, it prefers high-quality companies with consistent earnings and cash flow, reliable payout policies, and fair valuations.

The extent of the rotation will probably hinge on the external catalysts that CICC pointed to, especially the path of US monetary policy and the outcome of the global AI earnings season in the next few weeks.