A-Share Q1 Earnings Growth Rises Sharply to 7.2%, Non-Financial Sector Profits Improve Markedly

Overview

This report provides a comprehensive review of A-share financial results for the first quarter of 2026. The core conclusion is that the A-share earnings cycle has confirmed its reversal: not only has the pace of aggregate growth accelerated significantly, but quality has also improved markedly (as evidenced by margin expansion). Driven by AI industry trends and domestic policy support, the technology-growth sector has delivered the strongest performance, while upstream and midstream industries have stabilized as PPI turns positive. Based on this robust earnings-recovery foundation, UBS expects A-shares to enter an earnings-driven 'slow bull' market, with a structural bias toward growth-oriented styles.

Core views

The resonant recovery on both the demand and earnings sides is the most critical finding of this report. In Q1 2026, A-share net profits increased by 7.2% year-over-year, far outpacing the 3.8% growth recorded for all of 2025. More importantly, this recovery is primarily led by the non-financial sector, whose earnings growth has surged from 0.8% last year to 11.8%. Two main drivers underpin this turnaround: first, the global AI wave and the theme of technological self-reliance have sustained demand expansion; second, the steady implementation of China’s ‘anti-involution’ policies has prompted a positive shift in the Producer Price Index (PPI) for upstream and midstream industries, triggering a bottoming-out and rebound in their profitability. On the profitability front, both gross profit margin (GPM) and net profit margin (NPM) in the non-financial sector improved year-over-year in Q1. This marks a break from the continuous margin erosion since 2020, signaling a substantive回暖 in aggregate macro demand and micro-level corporate profitability. At the same time, firms’ investment appetite has strengthened, with capital expenditures (Capex) in the non-financial sector rising 3.4% year-over-year. Among them, transportation, nonferrous metals, defense, electronics, and computers saw the fastest Capex growth, at 52%, 45%, 40%, 37%, and 29% respectively, indicating a concentration of capital in high-prosperity segments. In terms of sectoral structure and differentiation, technological innovation has emerged as the dominant force in the market. Benefiting from the rapid development of the AI industry, computer, electronics, and electrical equipment earnings soared by 124%, 74%, and 53% respectively. On the exchange level, ChiNext and STAR Market earnings growth reached 23% and 205% respectively, outpacing the main board and underscoring the powerful pull of 'new-quality productivity' on tech-sector profits. By contrast, the consumer sector has shown a relatively weak recovery, with food & beverage, home appliances, and automobiles posting declines of 2%, 8%, and 22% respectively. The financial sector is bifurcated: banks posted solid 3% growth, but non-bank finance (mainly insurance) saw a slight 1% decline amid March’s equity-market correction. Taken together, these robust Q1 data have prompted the institution to raise its full-year A-share earnings growth forecast from 8% to 11%.

Analysis framework

The institution’s analytical framework follows the classic path of ‘aggregate validation → structural decomposition → valuation mapping.’ First, by comparing quarterly and annual historical data, it confirms that we are at an upward inflection point in the earnings cycle. Second, isolating the non-financial sector to examine the real economy, it uses quantity-price disaggregation (coupled with PPI changes) to explain the recovery logic in upstream and midstream industries and leverages capital expenditure data to assess firms’ future capacity-expansion intentions. Finally, combining the earnings elasticity across sectors (e.g., tech’s high growth vs. consumption’s tepid recovery) with the benefits of capital-market reforms (the STAR Market’s rapid growth), it concludes that market style will tilt toward growth-oriented strategies.

Methodology notes

• Industry/Industrial Analysis FrameworkUpstream-Midstream-Downstream Value Chain Transmission

  The linkage between PPI and upstream/midstream profitability

  This report points out that the ‘anti-involution’ policy has improved PPI in upstream and midstream sectors, thereby driving a rebound in their earnings. This exemplifies the typical value-chain transmission logic: stabilization and recovery in upstream raw-material prices (PPI) directly enhance the profit margins of midstream manufacturers and upstream resource-based firms.

• Company Fundamentals and Financial FrameworkFree cash flow analysis

  Capital expenditures (Capex) as a leading indicator

  The report focuses on the growth rates of capital expenditures across industries. Capex serves as a leading indicator of future revenue; by analyzing which sectors are ramping up investment (e.g., transportation, nonferrous metals, electronics), the institution gauges the trajectory of industrial prosperity over the coming quarters.

Key data

• Overall A-Share Earnings Growth (Q1 2026)+7.2% YoYA significant acceleration compared to the 3.8% growth for all of 2025
• Non-Financial Sector Earnings Growth (Q1 2026)+11.8% YoYA substantial rebound from the 0.8% growth for all of 2025
• Computer Sector Earnings Growth+124% YoYDriven by surging demand for AI and technological self-reliance
• STAR Market Earnings Growth+205% YoYThe innovative segment representing new-quality productivity performed exceptionally strongly
• Non-Financial Sector Capital Expenditure Growth+3.4% YoYReflecting a回暖 in corporate investment appetite
• Revised Full-Year A-Share Earnings Forecast for 2026+11%Up from the previous estimate of 8%

Impact & implications

The report argues that this robust fundamental recovery will provide firm support for the A-share market, propelling it into an earnings-led ‘slow bull’ phase. Structurally, given the explosive growth in the technology sector and the sharp increase in capital expenditures, market style will continue to favor growth stocks, while the consumer sector remains in a grinding-bottom phase and requires further observation to determine whether demand can truly follow through.

Risks

• Global economic volatility and uncertainties in the technology supply chain
• Domestic macroeconomic recovery falling short of expectations

What to watch

• The sustainability of demand in the technology sector (particularly AI)
• The long-term impact of China’s ‘anti-involution’ policies on upstream PPI and profit margins
• When consumer-sector earnings (food, appliances, automobiles) can finally halt their decline and begin to recover