Catching signals of Chinese recovery, selecting top DRs for the portfolio.

Investment opportunities in Chinese stocks: 4 themes through DRs in the Thai stock market, signaling that the economy has passed its lowest point. Key Chinese government policies for 2026 are passing the baton to the 15th Five-Year Plan. Innovates X Securities believes Chinese technology stocks don't just follow trends, but have their own ecosystem.

Over the past 1-2 years, the most frequently asked question from Thai investors has been: Has the Chinese stock market's cycle ended, or is this just a false recovery? InnovateX Securities points out that, based on empirical data from the first quarter of 2026, the Chinese economic structure is showing signs of reflation, or a systematic passing of its lowest point, under government intervention measures, even though it still faces slow recovery in purchasing power.

The overall economy is beginning to "past its lowest point".

Sitthichai Duangratanachaya, Head of Investment Strategy, Innovest X Securities.  It is said that, according to the latest economic figures for the first quarter of 2026, the Chinese economy is not in a sluggish state as many feared, but is instead showing a clear positive trend of sectoral divergence in its recovery, as reflected in...

Stronger-than-expected GDP growth: China's GDP in Q1 26 expanded by 5.0% YoY (equivalent to the 2025 full-year growth rate), driven by exports which grew by a strong 14.7% YoY in Q1 26 and continued to accelerate in April, with exports growing by +14.1% YoY and imports by +25.3% YoY, reflecting a rebound in global and domestic demand.

Signs of an exit from deflation: The Producer Price Index (PPI) in April rose +2.8% YoY (a significant increase from 0.5% in March), partly driven by higher oil and crude energy prices. This has led the People's Bank of China to have a more positive view on inflation prospects and to revise its 2026 PPI forecast upward to 2.0% (from 1.2%).

Real Estate Starts to Build Base: Although new construction remains sluggish, the average housing price index in 70 major cities (April) showed the smallest decline in 12 months. In particular, top-tier cities (Beijing, Shanghai, Shenzhen, Guangzhou) have seen both new and resale home prices turn positive month-on-month (MoM) for the third consecutive month.

The financial results of large commercial banks reflect stability: 1Q26 results for BOC, CCB, ICBC, and ABC showed pre-provision income (PPOP) growth averaging 12% YoY, driven by a recovery in net interest margin (NIM). Although net profit grew only 4% due to banks increasing loan loss provisions by 29% YoY, this reflects a buffering behavior to limit credit risk, not a weakening of the banking system.

Key policies of the Chinese government in 2026 (passing the baton to the 15th Five-Year Plan).

From the Two Sessions meetings (March 2026) and the Politburo meeting (April 2026), the government's policy direction clearly signals a focus on stability rather than haphazard economic stimulus. The period from 2026 to 2030 will be the 15th Five-Year Plan (FFP), with the government setting a long-term goal of becoming a middle-developed country by 2035, prioritizing quality growth, the transition to clean energy, and economic stability. Fiscal policy in 2026 will maintain a gradual economic stimulus approach, allocating a total of 12 trillion yuan for the issuance of special government bonds to invest in key strategic projects, with a focus on…

The Chinese government continues to maintain high fiscal deficits and quotas for issuing special local government bonds, totaling around 11.9 trillion yuan, focusing on channeling funds into large-scale infrastructure projects ready for immediate commencement.

The People's Bank of China (PBOC) has clearly signaled its monetary policy in its Q1 26 monetary policy report, shifting its focus from cyclical adjustments to risk management and maintaining low financing costs. It is expected that there will be no interest rate cuts or reductions in the reserve requirement ratio (RRR) this year, as there is already ample liquidity in the banking system.

The focus should be on a high-quality economy, with the greatest emphasis on technological stability, self-reliance, and investment in human resources, rather than stimulating the real estate sector or providing traditional subsidies.

China and its role in technology: By 2026, Chinese tech stocks won't just be following trends, but will have their own ecosystem.

The traditional notion that Chinese technology companies were mere copycats or grew because the government prohibited foreign competitors may no longer apply in 2026. Many Chinese technology companies aspire to drive their own growth and support domestic companies. China will no longer be the traditional global producer or technology follower. By 2026, the National Development and Reform Commission emphasizes self-reliant growth, focusing on building future industries as a new driver of economic growth to replace traditional real estate and manufacturing sectors.

Leading industrial technology companies like Inovance (a leader in factory automation systems) demonstrated their significant bargaining power, enabling them to pass on raw material costs such as copper and silver to buyers as early as March and April. Furthermore, the Chinese government is directly funding the country's computing and AI infrastructure to create an independent semiconductor and supercomputer supply chain, free from Western influence.

1Q26 earnings for the Consumer Electronics and Smart Vehicle (e.g., Ninebot) sectors showed outstanding growth in overseas revenue. Chinese technology and home appliances continued to gain market share in Europe and Asia through unique innovations and superior cost management compared to competitors.

Select top Chinese stocks for your portfolio. DR In the Thai stock market.

Innovest X Securities views Chinese stocks in 2026 as not being speculative investments like in the past where prices didn't reflect fundamentals, but rather investments in stability with attractive valuations. Gradually accumulating DRs (Depositary Receipts) of leading Chinese stocks at this time is therefore a good strategy to capture the inflow of funds into attractive assets before the market fully realizes the recovery in 2H26-2027.

To build an investment portfolio that benefits from the recovery of the Chinese economy and undervalued stocks, Thai investors are advised to create a diversified portfolio including growth stocks to capitalize on future technology trends and value/dividend stocks to reduce portfolio volatility. This can be achieved by investing through Depositary Receipts (DRs) in the Thai stock market.

For Thai investors, accessing this round of Chinese economic recovery is easiest and most effective through an instrument called DR (Depositary Receipt), traded on the Stock Exchange of Thailand in Thai baht. This provides an alternative investment option covering the following key themes:

Theme 1: Domestic Tourism

InnovateX Securities views the Chinese tourism sector as attractive, noting that the impact of reduced purchasing power will lead to more domestic travel among Chinese citizens. However, spending may not increase significantly due to high energy prices. Furthermore, the Chinese government is encouraging domestic tourism and is increasing marketing efforts to attract international tourists. We recommend looking at DRs referencing individual stocks such as Tripcom23 and Tripcom80.

Theme 2: Riding the wave of self-reliant growth in the innovation sector.

High-tech stocks that directly align with the Chinese government's new economic development plan, which emphasizes High-Tech Manufacturing, Computing, and AI, will see domestic growth, driving increased demand in the semiconductor industry and supply chains. Looking at the market, we're considering DRs referencing ETFs like CHNXT5023 and CNSTAR5023. For individual stock-referenced DRs, we have a positive view on SMIC23, SMIC13, SMIC03, SMIC01, HUAHONG23, BIREN23, NAURA23, NAURA80, GIGA23, or diversifying to ETF-referenced DRs like CNSEMI23. Alternatively, we could consider AI-application DRs like KINGSOFT23, SENSE23, ZAI23, HORIZON23, UBTECH23, or CNROBOAI23, and perhaps even the Data Center sector, specifically GDS23.

Theme 3: Diversify risk and focus on low volatility, high dividend yields.

For investors with limited risk tolerance but seeking to benefit from capital inflows, large Chinese commercial banks (such as BOC, CCB) offer high average dividend yields of up to 5%, significantly higher than Chinese government bond yields (1.8%) and fixed deposit interest rates. Recent quarterly financial statements prove these banks are very strong and secure. Alternatively, consider equity-referenced deposit receipts (DRs) in the financial sector such as AIA23, AIA19, AIA06, and HSHD23, or CHMOBILE23, CHMOBILE19, which also offer high dividend yields.

Theme 4: Home Appliances and Electric Vehicles.

Given the less-than-favorable economic outlook and slow recovery in some industries, coupled with declining consumer purchasing power due to higher energy prices, we anticipate the Chinese government's extension of its electric vehicle trade-in subsidy program. Overseas sales are expected to be the primary growth driver in Q2 26. We are looking at DRs referencing individual stocks: XIAOMI23, XIAOMI19, XIAOMI13, XIAOMI01, as well as the increasing demand for electric vehicles (EVs) in the EV supply chain driven by rising Chinese EV exports and higher energy prices. We specifically view GANFENG23, ZIJIN23, ZIJIN80, ZIJIN13, CATL23, CATL80, and CATL01.

Source: setinvestnow

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