HSBC Wealth Insights: Q1 Macroeconomic Data Surpassed Expectations, Focusing on Industrial Resilience and Local Price Improvements | China Perspective

Q1 macroeconomic data exceeded expectations, with some industrial sector production prices accelerating upward

Since the beginning of this year, the US-Iran conflict has impacted the global energy market, posing severe challenges to the global macroeconomy. Although China cannot remain unaffected amid intense market fluctuations, its relatively low dependence on Gulf region crude oil and its electricity structure primarily based on coal and renewable energy have allowed its industrial foundation to respond calmly to the shocks so far.

Recent economic data generally confirm the resilience of China’s industry. In the first quarter, gross domestic product (GDP) grew by 5% year-on-year, surpassing market expectations, with industrial production activity and trade remaining generally steady. The Producer Price Index (PPI) turned positive for the first time in 41 months. Thanks to strong demand for AI (artificial intelligence) and the influence of the “anti-involution” policy, even before this round of energy import price shocks, prices in sectors such as materials, industrial equipment, and semiconductors had already been rising consecutively, benefiting industrial profit margins. Notably, China’s industrial enterprise profit margins surged to 15.5% in the first quarter of this year (compared to an expected year-on-year increase of only 0.8% in 2025).

Despite industrial activity and exports still performing strongly, March data shows consumer demand remains cautious. In March, total retail sales of consumer goods increased by only 1.7% year-on-year, further slowing from January-February, and consumer price index (CPI) inflation remained moderate. Achieving balanced economic recovery in the coming quarters will still require sustained policy support for domestic demand.

Thanks to ongoing “anti-involution” policies, China’s industrial production price index experienced months of month-on-month increases before this round of oil price shocks.

Note: PPI is the Industrial Production Price Index.

Data sources: Bloomberg consensus, HSBC Global Research, HSBC Qianhai Securities, HSBC Private Banking and Wealth Management, as of April 27, 2026

Stock Market: Optimistic about A-shares due to upward revisions in earnings expectations, ample liquidity, and diversification benefits

Earnings season offers investors a chance to refocus on fundamentals amid geopolitical noise. So far, more than half of A-share companies have released their 2025 financial reports, with the materials sector (+41.6%) and information technology sector (+33.8%) leading the gains. Looking ahead, the market still expects a structural recovery in A-share earnings: consensus anticipates a 17.9% year-on-year increase in 2026 earnings. Since the beginning of the year, earnings expectations for the materials, energy, and information technology sectors have been revised upward the most.

Our China equity strategy continues to adopt a barbell approach, prioritizing sectors benefiting from the normalization of the Producer Price Index (PPI) and government-led capital expenditure, such as materials. The technology sector remains a long-term structural theme in our view. Given ongoing geopolitical uncertainties and potential stagflation risks, high-quality dividend-paying stocks can add stability and resilience to our portfolio.

Materials and information technology sectors lead the market in upward earnings revisions for 2026.

Data sources: Wind, HSBC Qianhai Securities, as of April 24, 2026. Note: The chart excludes data from the real estate sector (market consensus revised downward by 303.3%).

Bond Market: Curve bull flattening driven by liquidity conditions

Since April, China’s bond market has shown independent performance amid a global risk appetite recovery. Unlike the differentiated performance in March across maturities, in April, the overall Chinese bond market displayed a “short-term stability, long-term catch-up” pattern, with yields on interest-rate bonds declining across the board. As of April 24 close, the 3-month government bond yield was 1.11%, and the 10-year government bond yield remained at 1.76%, with the ultra-long end under more pressure. Bond funds have seen continuous net inflows over the past three weeks, with institutional demand for duration allocation clearly increasing.

We believe that the April decline in yields is more a correction after the previous steepening of the yield curve, with limited market disturbance from economic data. Liquidity conditions and supply rhythm remain key pricing variables. Looking ahead, in the short term, liquidity may face dual tests from tax payments and the issuance of the first batch of ultra-long special government bonds, potentially amplifying yield volatility. In the medium term, the core support for the bond market still lies in the ample interbank liquidity and the shift of deposits to non-bank financial institutions, which drives allocation demand.

The ultra-long end rally in April may be more about catch-up.

Data sources: Wind, HSBC Private Banking & Wealth Management, as of April 21, 2026.

The Chinese stock views in this report are from HSBC Private Banking and Wealth Management Global Investment Committee. For more content, click【HSBC China Wealth Insights Column】.

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