BofA Securities recently released its outlook report for China market in 2Q26. China equities lagged behind the MSCI EM in January to February 2026, but outperformed EMs in March, with lower share price volatility and a more stable currency. Although China’s economic fundamentals may not be the most exciting, its large and diversified economy demonstrates relative resilience under extreme scenarios, supported by ample domestic coal reserves, rapidly growing renewable energy, high crude oil inventories, and relatively lower dependence on Middle Eastern oil. The broker recommended defensive play in the China market in 2Q26 while awaiting positive catalysts.

Looking ahead to 2Q26, key observations remain on potential disruptions in Gulf shipping and oil and gas supply chains, as well as contagion risks in chemicals and fertilizers. The China-US leaders’ summit scheduled for May 14-15 could serve as a positive catalyst if it helps stabilize bilateral relations. Meanwhile, China’s inflation, consumer confidence, property market and AI applications remain core fundamental factors. The broker reiterated its barbell strategy, favoring value and yield plays (banks, energy) as well as industries with strong moats (such as semis, industrials and materials).

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BofA Securities’ quarterly model portfolio selected the Top 10 Overweight industries, including (1) Chinese banks, (2) oil and gas, (3) metals and mining, (4) chemicals, (5) gold, (6) communications equipment, (7) coal and fuels, (8) airlines and shippers, (9) life sciences and services, and (10) transportation infrastructure.

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