China Equity Strategy Innovation to drive the rally and broaden it out

Research evidence excerpt

26 September 2025

Equity Research Report

China Equity Strategy

Equity Strategy

China

Innovation to drive the rally and broaden it out

◆ The rally is likely to broaden out from optical modules to other

growth sectors like Apple supply chain, energy storage, CXO

◆ We see a structural recovery in 2026e earnings (especially in

electrical equipment) and the abundant liquidity to continue

◆ Introduce our 2026e targets for SHCOMP/CSI300/SZCOMP

at 4,500/5,400/16,000, implying upside of 17-20%

Rotation or not rotation? Investors are asking if there’ll be a rotation from optical

module stocks to other sectors given the surge in equity prices. We see the rally

broadening out to other growth industries like Apple’s value chain, energy storage,

and CXO (a medical subsector) and expect optical modules – components of data

centers used for AI and cloud computing – to head higher. By contrast, we see

traditional consumption and high dividend names as less likely to benefit from a

broadening-out of the rally and a lacklustre economy. Moreover, a PEG comparison

suggests optical modules, Apple’s value chain, and energy storage are far from

expensive as they all have a PEG<1 (vs. CSI300 of 1.43).

Steven Sun*, CFA (Reg. No. S1700517110003)

Head of Research, HSBC Qianhai Securities Limited

HSBC Qianhai Securities Limited

Jeffrey Xie* (Reg. No. S1700523100002)

Analyst, China Equity Strategy Research

HSBC Qianhai Securities Limited

Neal Chen*, PhD (Reg. No. S1700524120001)

Analyst, China Equity Strategy Research

HSBC Qianhai Securities Limited

Lydia Li*, CFA (Reg. No. S1700525040002)

Analyst, China Equity Strategy Research

HSBC Qianhai Securities Limited

* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is

not registered/ qualified pursuant to FINRA regulations

It’s all about innovation. We believe China’s re-rating is supported by improvements

to its innovation capability and integration with the global innovation cycle which

makes China a critical and indispensable part of the world’s supply chain. As such, we

believe this rally could be a reflection of China’s leading innovation capabilities across

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