A-Share Earnings Cycle Turns Upward; Manufacturing Capacity Hits Inflection Point

As of the first quarter of 2026, A-share listed companies have completed disclosures of their 2025 annual reports and Q1 2026 earnings reports. Data shows that the A-share earnings cycle has entered an upward trend, with revenue growth accelerating for three consecutive quarters. The phase of passive inventory drawdown may be nearing its end, and corporate profit recovery is still in its early stages. The turning point in the broad-based manufacturing capacity cycle has just been passed—similar to Q3 2016—and composite indicators suggest that A-share return on equity (ROE) has entered a recovery cycle. Sector-level divergence is intensifying: TMT and advanced manufacturing continue to see improving fundamentals, while cyclical sectors and consumer-related industries remain in a bottoming-out phase. Traditional export- and infrastructure-linked sectors face ongoing pressures. Additionally, excluding loss-making firms, the number of dividend-paying companies has reached a record high. Among sample firms, overseas revenue as a share of total revenue has hit an all-time peak, and gross margins from international operations have consistently remained higher than those from domestic business. In terms of allocation priorities, sectors showing simultaneous improvements in both supply and demand include consumer electronics, minor metals, coal, and building materials. Sectors identified in Q3 2025—such as batteries, power grid equipment, construction machinery, photovoltaic equipment, and commercial vehicles—continue to warrant close attention.