China is entering what Jefferies describes as “an era of the private sector,” with the country shifting from its common prosperity agenda toward “AI & high-tech mfg dominance” under the 15th Five-Year Plan. 

In a strategy note, Jefferies quantitative analyst Mahesh Kedia says the market remains attractive on “PE/G,” with earnings momentum set to accelerate despite expected consolidation.

Jefferies outlined five investment themes for 2026. 

First, the bank highlights “high-growth tech and manufacturing stocks with upgrades,” noting that China’s policy direction has moved decisively toward semiconductors, automation, robotics, biotech, and other advanced industries. 

Jefferies says this “story is still in its early stages,” adding that its high-growth basket is up 89% this year and supported by a remarkable “51% EPS CAGR” with continued upgrades.

Second, Jefferies urges investors to differentiate between “secular upgrades” and downgrades. 

While valuations in parts of the market have related sharply, Kedia points to a broad improvement in earnings revisions, with “46%” of companies now seeing upgrades compared with “22%” in late 2023. 

Sectors such as financials, materials, communication services, energy, and IT are said to screen positively, while property, staples, healthcare, and utilities lag.

The third theme is sustainable yield. As growth moderates, Jefferies says China’s focus has shifted to high-quality growth, with dividends and buybacks becoming more important. It notes that MSCI China private-sector payout ratios remain low at “20%,” offering room to rise.

Fourth, Jefferies highlights a revival in Hong Kong listings, with 2025 proceeds of “US$33bn” already exceeding the previous three years combined and strong demand for industrial and high-tech IPOs.

Lastly, Jefferies advises investors to “buy ROIC stars” as private-sector profitability improves, arguing that rising incremental ROIC makes 2026 an opportune moment to reassess high-ROIC companies.