From the PPI normalization trend, observe the investment opportunities in cyclical and stable sectors.

Ask AI · How do rising international oil prices and domestic policies work together to promote PPI recovery?

Macroeconomic indicators are the core basis for understanding the logic of capital market operation, among which PPI, as a key leading indicator reflecting price fluctuations in the industrial sector and the prosperity of the real economy, its trend change directly maps the profit cycle of enterprises and the rotation of A-share sectors. Currently, domestic PPI year-on-year decline continues to narrow, month-on-month rises consecutively, with multiple institutions predicting it will turn positive between March 2026 and the second quarter. This inflection point not only marks the bottoming and rebound of the industrial goods price cycle but also signals the start of the industrial enterprise profit recovery cycle.

For the A-share market, PPI turning positive will reshape the profit distribution pattern of the industrial chain, driving both performance and valuation recovery in upstream resource and midstream material sectors, serving as an important clue for capturing medium- and long-term structural opportunities in A-shares. This article will systematically analyze the macro logic behind PPI turning positive, outline its transmission path to A-share cyclical sectors and investment opportunities, providing a top-down allocation reference for investors.

1. What is PPI, and what does PPI turning positive mean?

PPI, or Producer Price Index, is one of the core indicators for observing the profitability and prosperity of industrial enterprises, reflecting the trend of factory gate prices of industrial products. A long-term negative PPI usually indicates industrial product prices are falling to destock, enterprise profits are under pressure, and cyclical industries are generally weak; whereas, a shift from negative to positive PPI indicates industrial product prices have stabilized and begun to rise, enterprise profits are entering a recovery phase, and deflationary pressures are gradually easing. This is an important signal for market style and industry prosperity shifts.

On March 9, 2026, the National Bureau of Statistics released the latest PPI data: as of February 2026, China’s PPI was -0.9% year-on-year, narrowing by 0.5 percentage points from the previous month, narrowing for three consecutive months; month-on-month up 0.4%, rising for five consecutive months. It can be said that the current PPI is at a critical stage of moving toward positive territory.

Chart: China’s PPI shows a clear upward trend

Data source: Wind, as of 2026-03-25

2. What are the driving forces behind the continued narrowing of PPI decline?

The ongoing narrowing of PPI decline is mainly driven by two core forces: the input-driven inflation caused by rising international bulk commodity prices, and systemic rectification of excess capacity and “involution” competition through domestic structural policies. These two forces act from both cost and supply sides, influencing the industrial product price system.

On one hand, the direct driver of PPI narrowing and turning positive is from the cost side. Tensions in the Middle East, such as the Strait of Hormuz shipping restrictions, have led to a contraction in global crude oil supply, causing oil prices to surge. As crude oil is a fundamental raw material for industrial production, its price increase pushes up upstream raw material costs, raising the production costs of mid- and downstream industrial products, forming cost-push inflation, and directly narrowing PPI decline.

On the other hand, besides cost-driven factors, policy governance and industrial upgrading provide structural support. The government’s efforts in capacity regulation, environmental controls, and industry rectification improve pricing power in traditional sectors, helping to narrow PPI decline; simultaneously, ongoing industrial upgrades boost the price structure of high-tech manufacturing, further supporting PPI recovery. The combined effect of these two factors facilitates PPI’s gradual shift to positive.

Chart: PPI changes in some industries over the past three months in China

Data source: Wind, as of 2026-03-25

3. Which sectors in A-shares can capture excess returns before and after PPI turns positive?

Reviewing historical market performance around previous PPI turnings, it’s evident that cyclical sectors tend to outperform the broader market during these phases. Now that PPI shows clear signs of rebound, this pattern may once again be validated.

Table: Industry return rankings before and after two PPI turnings since 2015

Data source: Wind, as of 2026-03-25; note: industry classification based on Shenwan first-level industry indices

“PPI turning positive often brings investment opportunities in some cyclical sectors” — the logic behind this is quite straightforward, related to style classification and definition — cyclical style mainly covers upstream resources, raw materials, chemicals, building materials, and other industries highly sensitive to industrial product prices. During PPI recovery phases, product price increases directly lead to rapid profit improvement, which in stock prices manifests as cyclical sectors generating interval excess returns.

Additionally, during PPI recovery, a common pattern is: the market gradually shifts from a left-side layout to focusing on companies’ real earnings realization. Besides cyclical sectors, stable style sectors like utilities and transportation also tend to outperform. One explanation is that stable styles generally feature steady operations, stable cash flows, rigid demand, and stable dividends. As PPI turns positive, on one hand, rising prices may trigger inflation fears and liquidity tightening expectations, reducing risk appetite; on the other hand, pass-through of price increases begins to pressure some mid- and downstream industries’ costs. Under these conditions, stable sectors, with their defensive nature, stable cash flows, and relatively high dividends, become safe havens for some funds.

Table: Return intervals of the top five CITIC style indices before and after two PPI turnings since 2015

Data source: Wind, as of 2026-03-25; note: style indices based on CITIC five major style factors

4. How can ordinary investors leverage ETFs to seize investment opportunities from PPI turning positive?

As mentioned earlier, PPI turning positive mainly points to two types of investment opportunities: one is the cyclical sectors benefiting directly from price rebounds, and the other is the defensive sectors with inflation-hedging attributes. Following this logic, from a medium- and long-term perspective, we can identify specific industry directions worth attention at the current PPI turning point. Compared to hotly discussed themes, these industries may still experience short-term volatility but have sustained prospects and room for recovery in the medium to long term:

First, the chemical industry. Currently, Middle East tensions push oil prices higher, causing short-term volatility, but in the medium term, China’s “dual carbon” policies continue to advance, supply-side reforms in chemicals are gradually improving, and excess capacity is being phased out; long-term, European chemical capacity shrinks, and Chinese companies are expected to gain global market share. Overall, the upward trend remains intact, and short-term fluctuations may create medium- and long-term entry opportunities. Investors can consider ETFs like E Fund Chemical Industry ETF (516570) or connect funds (020104 / 020105).

Second, power grid equipment. China’s “14th Five-Year” plan for grid investment amounts to 4 trillion yuan, with expectations that new power system construction will generate stable demand; internationally, similar to the rebuilding needs after Ukraine’s power system attacks, the recent US-Iran conflicts have broader impacts, and potential infrastructure rebuilding needs could boost the industry. China’s grid equipment sector may thus see a “going global” window. Additionally, rapid AI development increases data center power consumption, raising higher requirements for grid stability and capacity upgrades. Under both domestic and external demand, industry prosperity is expected to be sustained. Investors can consider ETFs like E Fund Power Grid ETF (560390) for medium- and long-term allocation.

Third, green power. Recent geopolitical risks have heightened the importance of energy security. Green power does not rely on imported fossil fuels and offers more stable supply amid external fluctuations. The 2026 government work report first proposed the concept of “electricity and energy coordination,” a top-level infrastructure strategy that creates new demand for green power. Currently, valuation levels are relatively reasonable among energy assets. Investors can consider ETFs like E Fund Green Power ETF (562960) or connect funds (019058 / 019059).

In summary, for ordinary investors, facing the macro signal of PPI turning positive, there’s no need to chase the market or panic. A reasonable approach is to focus on sectors highly correlated with PPI recovery that are not fully priced in by the market, and to allocate accordingly while continuously monitoring industry prosperity and profit recovery. Economic indicators are never a foolproof tool for predicting market ups and downs but serve as references to understand medium- and long-term investment directions. While PPI turning positive indicates some structural investment opportunities, factors like commodity price volatility, price transmission efficiency, and the pace of real estate recovery can introduce uncertainties. Maintaining rational judgment and focusing on confirmed prosperity directions is the most prudent approach for ordinary investors facing macro signals.