Analysis of A-share Investment and Foreign Capital Flows Under Sino-US Monetary Policy Divergence in 2026

In 2025, the Federal Reserve launched an interest rate cut channel, adjusting the federal funds rate range to 3.5%-3.75%[1][2], while the People’s Bank of China (PBOC) maintained the 1-year Loan Prime Rate (LPR) at 3.00% for the seventh consecutive month[3][4], with the Sino-US 10-year Treasury yield spread at approximately 1.12%-1.18%[5][6]. Looking ahead to 2026, the Federal Reserve is expected to continue cutting rates (Goldman Sachs predicts the year-end rate will drop to 3.0%-3.25%[1]), and the PBOC will maintain a “moderately loose but prudent” policy orientation, leading to a sustained narrowing of the Sino-US interest rate spread. This will directly reshape global carry trade strategies: the attractiveness of the original “borrow RMB to invest in USD assets” will decline, and the relative return-to-risk ratio of RMB assets will improve, driving international capital reallocation[7].

1. Growth sectors (technology/AI, etc.)
   : The narrowing Sino-US interest rate spread will push the RMB to appreciate, increasing the foreign exchange gains for foreign investors holding A-shares[7]; meanwhile, the tightness of global USD liquidity will ease, domestic liquidity will remain ample, and coupled with policy support for technological upgrading in China’s economic structural transformation[8], the expectations for foreign capital inflows and valuation increases in A-share growth sectors will strengthen.
2. High-dividend low-valuation stocks
   : U.S. interest rate cuts will lead to a decline in global risk-free rates, highlighting the stable return advantages of high-dividend stocks; Morgan Stanley proposed a 2026 A-share “dumbbell-shaped” investment strategy, overweighting high-cash-flow value stocks, and institutional allocation demand will rise[8].
3. Foreign capital flows
   : RMB appreciation and narrowing Sino-US interest rate spreads will drive foreign capital to increase their allocation to A-shares[7], and the allocation structure will tilt toward growth technology sectors and high-dividend value sectors[8].

• Opportunities
  : The foreign capital inflows and RMB appreciation brought by the narrowing Sino-US interest rate spread provide allocation opportunities for A-share growth sectors such as technology/AI and high-dividend low-valuation stocks; policy support for China’s economic structural transformation further strengthens the long-term investment value of growth sectors[8].
• Risks
  : Factors such as the actual pace and magnitude of the Federal Reserve’s rate cuts, the strength of China’s economic recovery, and global geopolitical risks may affect the scale and speed of foreign capital inflows. Investors need to pay attention to relevant uncertainties[8].

In 2026, the narrowing interest rate spread under Sino-US monetary policy divergence will reshape global investment allocation logic, enhancing the attractiveness of RMB assets and increasing expectations of foreign capital inflows into A-shares. A-share growth sectors (technology/AI, etc.) will benefit from foreign capital inflows, improved liquidity, and policy support; high-dividend low-valuation stocks will see increased relative attractiveness against the backdrop of declining global risk-free rates and become a focus of institutional allocation.

[0] Jinling Analysis Database
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