2026 watchlist: My thoughts and equity picks for the year ahead Part 1

Will the year of the Horse deliver galloping stock returns

Hello everyone. Hasn’t this year been amazing? So much happened this year that I’m reminded of one of my favourite quotes, “ There are years where nothing happens that weeks where decades happen”. Well the weeks from the “Liberation Day” onwards certainly felt like that. Everyday, the market’s only calling was the “Truth” posted by someone on a certain social media platform. Then finally the whole world watched as trade tensions and drama were promptly settled in Korea and ever since then all we’ve hearing about is AI, S©am Altman, and AI. Seriously the months of August, September, and October just felt like S©am Altman was everywhere signing contracts for compute; corporations and world leaders alike succumbed to his feet and promised him blank cheques (and some even agreed to sell him their company, I’m looking at you: AMD).

On this side of the Pacific, a lot has happened too. Despite Uncle Sam’s bravado, The Middle Kingdom has managed to stand on its feet unscathed and delivered counter blows at every single turn and the knockout blow (some call it rare earth but I’m a simpler man). At the beginning of the year, a certain hedge fund manager with AI just as his side hustle shocked the world with the release of DeepSeek, a complete Frontier open source LLM that was trained at about 1/100th of the cost of its nearest competitors (I’m looking at you again, S©am Altman) and well the onslaught hasn’t dropped in intensity but instead gone up about 275 notches with new frontier open source models being released every single week (even by companies like Meituan, food delivery company and Xiaohongshu, your teen girl’s favourite social media app). Alibaba’s Qwen, Bytedance’s Doubao, Tencent’s Yuanbao, Moonshot’s Kimi, Xiaomi’s MiMo have all established themselves at the AI State of the Art (SOTA) level much to the peril and complains of well known con artists like Dario Amodei and Altman. In the semiconductor space, there have also been heavy advancements in the fields of etching, deposition, bonding, cleaning, and lithography. Huawei’s Ascend and Cambricon’s GPUs have started to edge closer and closer to Nvidia causing a lot of drama up in Capitol Hill and the Pentagon. Life lesson folks: leave the chutzpah, before the chutzpah leaves you.

In the world of equities, everything with the world AI in it rightly gets pushed as humanity is engaged in the pursuit of the creation of Digital God (or that’s what we like to pretend up in DC political circles anyways). The conman is more spiritually American than the cowboy but I’ll stop now there’s always people out there wanting to tell you who or what an American is, around this time of year, well what can I say: “Merry Christmas! folks”.

This year has always been one of great personal change for me. I started this Substack on a random winter day after returning from my trip to China and I’m so grateful to have found an audience that engages so actively with my content despite me usually not being the best at giving back. Your kind messages, comments, feedback, and friendly debate is what motivates me to keep going and the journey of growing together with you is perhaps the most wholesome I’ve had in my life. I never even in my wildest dreams expected to close the year with almost close to one thousand of you subscribed to me and even more following my work. I hope and promise that in 2026, I’ll do much better to repay your love and support.

Now that you’ve probably had enough of my rambling, let’s talk about the equities to watch in 2026.

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Equities to watch in 2026

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(1) ACM Research (ACMR)

I’ve written extensively about ACMR before, but I’ll summarize it again here for you instead of just linking my previous article (I’ll do that too but I’m a nice guy so I’ll write it here briefly first for those in a hurry).

There is a great opportunity ahead for the Chinese semiconductor in general and ACMR in particular. According to a report by GS in 2023, Chinese semiconductor demand comprises about 35% of total semiconductor demand but Chinese domestic production is only about 7-8% of total domestic demand. That figure has risen quite a bit by now (December 2025) but there’s still significant room for growth. China is perhaps the only country in the world that is looking to build an entirely domestic semiconductor supply chain and any move that the U.S. makes to strangle Chinese semiconductor advancement and development will only exacerbate the development of the sector even further.

ACM Research Shanghai (83% owned by ACMR) trades at about 12.54x sales and 45x PE while its parent headquarters in Fremont, California and listed on the NASDAQ trades at near 3x revenue and a $2.8 billion market cap. The Shanghai listed subsidiary has a market cap of $12 billion and the American hold co trades at about a 75-80% discount to its own subsidiary. Such a massive discount in the context of a fast growing industry like semiconductors is outrageous, if both were to trade at parity then the potential upside is near 300%+.

The reason for the large discount between the holdco and the subsidiary— the risk of geopolitical conflict between the U.S. and China boiling over to asset seizures and sanctions. The chances of this happening are rare since ACMR is a US domiciled company and US companies have really been sanctioned before by the US Government. However I think that tensions boiling over to breaking point may very well play into the hands of shareholders. The most that the US Government can ask ACMR to do is to sell out of their ACMS stake but such a move would be extremely beneficial for shareholders as we would get instant value unlocking. The CEO and founder David Wang was born in China and still holds a Chinese Green Card while his brother manages ACM Shanghai, David would probably love to join his brother in Shanghai with his new found wealth and a Xintiandi apartment to boast and run ACMS together contributing to semiconductor self sufficiency of the Motherland.

There’s many other ways for management to bridge the valuation gap, the management could pursue a Hong Kong dual listing with freely convertible U.S. shares, this will attract Hong Kong, mainland and other Asian based investors who don’t have PATRIOT ACT investment mandates. Another way for ACMR management to unlock value is for ACMR to liquidate a part of their ACMS holdings and repatriate that money to either pay out to investors in the form of a special dividend, conduct buybacks, or spend it building their planned facility in Oregon. Any of these moves will attract the attention of the market and lead to an immediate re-rating boosting investors’ alpha.

With all the SMIC, YMTC, CXMT, and Huawei capex coming online from 2026 onwards and ACM’s tech being very well recognized and acclaimed among Chinese fabs, the runway for ACMR from this (still) very low valuation is truly sky high.

You can read more of thesis here:

https://substack.com/@dragoninvest/p-165433885

(2) R.S. Technologies (3445.T)

I’ve written about R.S. Technologies earlier too and I’ll briefly summarize my thesis here. The company was only established in 2010 (that’s just 15 years ago, yeah exactly where were you in 2010) has grown into becoming the global leader in wafer reclaim (33% market share) and is rapidly expanding into the prime wafer market particularly in China.

A reclaimed wafer is an used silicon wafer that has been processed, cleaned, and brought to a state just below new wafer quality. Reclaimed wafers are not intended for producing real semiconductor devices but instead used for testing, process monitoring, and equipment calibration in semiconductor manufacturing facilities. A prime wafer is a new, high-purity silicon wafer that is the fundamental substrate on which semiconductor devices are manufactured. Prime wafers are made of single-crystal silicon, typically through highly controlled processes like the Czochralski or Float Zone processes to attain high purity and consistency of the crystal.

The company is one of the few listed semiconductor companies anywhere in the world except China of course that derives a significant chunk of its revenue from its Chinese operations and list co subsidiary (the other being ACMR but unlike ACMR which derives almost 100% of its revenue from its Chinese subsidiary and operations, for RS Tech this figure is a much lower 40% but growing at exponential rates) and like its American cousin receives the same treatment of having its stock price value the Chinese subsidiary at tremendously low valuations (in the case of ACMR, there’s a significant delta or discount between the parent co and listco but in RS’s case, the Japanese market, very well known for its Chinese xenophobia, values it at zero).

For its mainland China operations, RS Technologies has several core assets, namely under its prime wafer business and reclaimed wafer business expansions. The prime wafer businesses involves its subsidiary Shandong GRINM RS Semiconductor Materials Co., Ltd. (Shandong GRITEK), which manufactures 125 mm, 150 mm, and 200 mm prime silicon wafers (used particularly in power semiconductors). The GRITEK factory carries out all operations of prime wafer production, from silicon ingot pulling through to slicing, polishing, cleaning, and shipping; it also supplies silicon semiconductor equipment consumables. On the reclaimed wafer side, RS has also established a joint venture/subsidiary in the form of SGRS (Shandong GRINM-RS Semiconductor Materials / SGRS in Dezhou) with local players (including the municipal government) to establish 12-inch reclaimed wafer capacity and increase prime wafer volume as well . Significant capital investment of about 6 billion yen has been planned to significantly and exponentially boost reclaimed wafer production in China from 50,000 wafers per month in 2024 to 200,000 wafers a month in 2027.

The company has also gotten involved in some new businesses (which well we’ll see what happens to them, I’m not particularly bullish or bearish on them). But it gets even more interesting when we account for the large discount between the valuation of the China listed subsidiary relative to the parent co market cap. One of their 40% owned subsidiary(688432.SH) is listed on the STAR market in China and their stake in it is valued at 142 billion yen vs the 97 billion yen market cap presently of the parent co. Just the value of their holding in this subsidiary is 1.5x the market cap. Truly one of the most exceptional disconnects of all time.

The company’s planned capex and the very heavy demand for both prime and recycled wafers globally (as well as in Mainland China) due to the memory supercycle coupled with R.S. Tech’s frankly absurd valuation means the potential for gains is very high. The key antithesis however is that the Japanese market has a tendency to price any Chinese assets at zero. The cheap valuation makes RS exceptionally attractive but it may just tread water despite delivering excellent returns unless things drastically change. You can read more of my thesis here:

https://substack.com/@dragoninvest/p-175355178

(3) Chongqing Machinery (2722.HK)

This one’s a substack favourite and many of your (and my) favorite authors have already written about this stock in droves so I might as well join in.

Chongqing Machinery is a Chongqing based (one of my favourite cities in China, go there sometime) SOE mostly in the business of producing industrial equipment like transformers, generators, turbine blades, CNC machines among other such boring stuff. A large chunk of the company is composed of barely profitable verticals that is typical of SOEs that aren’t really run to earn surplus profits but rather to boost industrial productivity, produce products essential for national security, and boost employment in their respective cities and provinces. Like most industrial SOEs, Chongqing Machinery has JVs with foreign enterprises (a remnant of China’s market for tech policy that begun in the 80s up until the late 00s, wherein foreign tech companies had to enter into local entities and transfer technology in exchange for access to the burgeoning Chinese local market). Among all of their many JVs, the two most important are those with Cummins and Hitachi. Let’s dive into them together.

Chongqing Cummins is China’s largest manufacturer of large diesel engines designed for data center backup systems. Presently, there’s a notable worldwide shortage of high-horsepower diesel engines, a direct result of the mindless crazy investment in AI data centers that I spoke about earlier (how can we resist not making money out of the stupidity of gentiles). After expanding production capacity in 2022 and securing a renewed tech licensing deal with Cummins Inc., the JV is now equipped to manufacture SOTA engines built for the rigorous needs of AI and high-intensity computing environments.

The JV’s strongest advantages is its market position. Globally, the data center engine market is dominated by just three companies:Cummins, Caterpillar, and Rolls-Royce who together command 70% of the market. Within China, Cummins alone claims roughly 40%. These engines are not optional; Government regulations require their deployment in all Chinese data centers.

The link to the AI boom becomes even clearer when we look at power requirements. Traditional cloud computing draws around 10kW per server rack, but AI workloads push that number to between 50kW and 100kW+. A single AI data center can thus demand 100–500 MW of electricity. This immense requirement places huge pressure on power networks and highlights the necessity of robust, large-scale backup generators. Even brief outages can be catastrophic in AI systems, operators thus have to significantly overbuild their power resilience using dependable, high-performance engines where Chongqing Cummins excels. Order volumes have been burgeoning globally and domestically. Executives from Cummins Inc have stated in recent investor calls that their high-horsepower engine backlog extends into 2027. This points to a sustained supply crunch that CQ Cummins is primed to capitalize on for 2026.

Next, I want to talk about the Hitachi joint venture, that produces high-end transformers under the Hitachi Energy name. These components are paramount to the power architecture of AI data centers. A typical AI data center can pull hundreds of megawatts and thus two distinct types of demand emerge for these transformers:

-Inside the Data Center: The shift to ultra-dense computing means existing power distribution setups are no longer sufficient. Data centers have to install advanced transformers and switchgear to handle the heightened electrical loads reliably.

-Outside the Data Center: No current electrical grid can accommodate a 500MW facility without substantial upgrades. Utilities are thus compelled to construct new substations and upgrade transmission infrastructure. These investments also rely on high-voltage transformers produced by Hitachi. Importantly, this second demand stream is funded not by data center firms, but by utility and public infrastructure budgets. Thus creating dual demand.

Thanks to this double demand dynamic, the Hitachi JV is well positioned to benefit from both the construction of massive AI data centers and critical grid enhancements those facilities necessitate. The market seems to be largely ignoring this second layer of growth, which only bolsters my confidence in the investment thesis.

Chongqing Machinery offers exposure to this red hot theme to profit from the AI mania at a juicy PE between 8-10x depending on the deal that you can land in this market correction. A hell of a price if you ask me.

(4) Foryou Corporation(002906.SZ)

From one industrial to another, let’s jump ship to Foryou Corporation. Foryou is a part of the massively hated Chinese auto ancillary sector notorious for issues like payment delays, massive receivables, tough customers who bake in annual price decreases into supply contracts among other such behavior. Suggesting investing in the Chinese auto ancillary sector is the investing equivalent of suggesting bungee jumping to a paraplegic man. But I have a good thesis to make this outrageous claim, hear me out.

The Chinese EV sector is currently in the most gruesome bloodbath known to mankind in modern history since the An Lushan Rebellion. BYD, the behemoth of the industry is heavily being competed against by Geely (traditional Chinese ICE behemoth led by veteran Li Shufu). Geely has consistently demonstrated the ability to outcompete BYD on price as well as outsell it. Geely’s models: Xingyuan and Galaxy E5 now define their respective segments: hatchback and mid size SUV instead of BYD’s equivalent models. BYD and Geely are both being competed against by emerging startups like Leapmotor, Nio (with their Onvo sub brand), XPeng, and Xiaomi. In addition there’s also the SOEs fighting back with their own SOTA models built with Huawei , Changan’s Avatr (collaboration with Huawei) brand, SAIC and Seres’s AITO, BAIC’s Stelato, among others. Chery and Dongfeng also have their respective brands competing fiercely; Dongfeng’s Voyah sub brand and even their Nissan N7 (JV with Nissan but basically a rebadged Dongfeng) has garnered significant sales too. Lastly, there’s also Tesla that’s declining but still significant force in the market.

BYD’s falling sales and decision to stop new domestic capacity expansion leaves a huge void for Geely and the other players including the SOEs and the startups to start to begin building capacity to aggressively take away BYD’s market share. The OEM space is thus completely uninvestable and has room for both margin and monetary incineration well except Xiaomi, which is the only company that has demonstrated an ability to sell cars consistently based on their marketing and brand strength (the fact that their product is stellar is less important because the market is so fiercely competitive). I’ll speak more about Xiaomi later. Now low and behold, my contrarian thesis.

In a brutally competitive environment where the behemoth is struggling and the challengers are increasing capacity and preparing for war, the importance of suppliers will be unparalleled. All market players (including BYD) will thus have to play nice to suppliers because well the supplier’s BATNA (best alternative to a negotiated settlement) is going to go higher and higher. Everyone will need their supply to prepare for war and thus will have to play nicer and nicer. No more delayed payments and contracted price decreases; the suppliers who earlier had lesser alternatives to a giant (BYD or Geely or SAIC) bullying them can now look to the startups, Huawei backed SOEs, or even foreign SOE JVs who will all boost capacity going into the next few years, for customers. My view is that auto ancillaries will go from being the most hated part of the sector to more appreciated as the scenario changes.

Foryou Corporation, based in Huizhou, Guangdong, ranks as a system level automotive component supplier. They focus on automotive electronics, precision die-casting, LED lighting, and precision electronic components. They have leadership in the domestic HUD (heads-up display market) with 22% market share. They are the sole supplier for the Virtual Panoramic Display of the Xiaomi SU7 and YU7, the LCOS AR HUD on Lotus Cars (owned by Geely), and the e-mirrors on the XPeng X9. They also count BAIC, Changan, Chery, and Xiaomi as clients for their domain controllers.

They also have a precision die-casting division where their zinc alloy cast is up 80% YTD additionally they also produce EV powertrains, ADAS and AI optical communication components for TE and Molex (if you follow the AI space, you must be aware of all the hype surrounding optics).

The company’s revenue has grown from 3.3 to 10.6 billion RMB from 2020 to 2024 (in just 4 years) and profits from 181 million to 690 million RMB. You can buy the stock now for a PE of 22x as the environment for this hated sector is improving.

(5) Hengtong Optic (600487.SS)

Above earth is heaven below is Suzhou. The next company comes to you all the way from Wujiang District in Suzhou. Hengtong Optoelectronics (600487) is a leading enterprise in the global optical communication and energy interconnection fields. The company has three core business segments-

• Marine Energy and Communication: This is the core segment of the company. This business has become the fastest-growing and most profitable sector of the company. In 2024, its revenue was 5.73 billion yuan, a year-on-year increase of 69.6%, with a gross profit margin as high as 33.53%. The company is the only Chinese company with a complete industrial chain covering the R&D and manufacturing of submarine optical cables, underwater junction boxes, and other products, as well as transoceanic communication network solutions. Its market share in the domestic submarine cable market exceeds 50%, ranking top four in the world. It has also successfully developed 35kV and 66kV dynamic submarine cable systems and won bids for many deep-sea wind power projects. In addition, the company plans to spin off its subsidiary Hengtong Marine Optical Network to raise capital and further enhance its competitiveness in this segment.

• Optical Communication: The traditional optical fiber and cable business of the company has been under heavy pressure due to sluggish demand and fierce competition. Its revenue in 2024 decreased by 11.0% year-on-year. However, the company has achieved key technological breakthroughs that may help in turning the ship around. Its global first “three-band” ultra-low-loss multi-core optical fiber has been put into large-scale commercial use, and it has broken through the core preparation technology of anti-resonant hollow-core optical fiber, with mass delivery capabilities. It recently supplied small batches to U.S. hyper scalers, notably, Microsoft and Meta. The AI advanced optical fiber material R&D and manufacturing center under construction is expected to be completed in early 2026 and will enable Hengtong to effectively scale its data center optics business at a time when the shortage of supply in optics is leading to a massive increase in prices due to burgeoning demand.

• Smart Grid: In 2024, the revenue of this business was 22.184 billion yuan, a year-on-year increase of 14.7%, accounting for the largest proportion of the company’s revenue. The company has complete core product R&D and manufacturing technologies. With the increasing demand for global power grid upgrading and new energy grid connection, this business will continue to provide stable cash flow for the company particularly domestically in China where grid upgradation is a key tenet of the latest 5 year plan.

National strategies such as the 14th Five-Year Plan for Marine Economy, East Data West Computing, and the Dual Carbon goal have been driving strong demand for submarine cables in offshore wind power and optical fibers in data center construction. The Wind Energy Beijing Declaration 2.0 proposed that the annual new installed capacity of offshore wind power in China will not be less than 15 million kilowatts during the “15th Five-Year Plan” period, which will continue to benefit the company’s marine energy and smart grid businesses.

As of the time, this article was written Hengtong is trading at only a 22x TTM PE ratio and 17x forward PE while being at the forefront of various emerging trends into the next year.

(6) FUTU

Jumping from the productive side to some financial spiritual opium. FUTU stands as perhaps one of the cheapest ways globally to capitalize off of the increasing trend of hyper speculation in the financial markets. FUTU is a brokerage hyper focused on catering to Greater China and South East Asian investors looking to invest globally as well within their domestic markets. They have two different brokerage services: Futubull, focused on mainland and Hong Kong based Chinese speaking investors and Moomoo, focused on SE Asian investors and markets.

Both platforms synthesize real-time market data, commission-free or low-cost trading, and socially integrated features such as portfolio tracking, community discussions, and educational content in markets where such features are a far cry and lethargic traditional brokers with high fees dominate.I would even go as far as to call it the Robinhood of Greater China and South East Asia. Unlike traditional brokerages burdened by legacy systems and physical infrastructure, FUTU’s cloud-native architecture allows for innovation, rapid deployment of new features, and a highly responsive user experience tailored to mobile-first investors; mobile first experience is essential in their core markets where people are more accustomed to using mobile phones for everything and familiarity with traditional desktop based web platforms is low. Their technological sophistication is one of their key competitive advantages allowing it to capture and retain a loyal and engaged user base in an increasingly crowded market.

FUTU’s business model incorporates a multi-pronged monetization strategy that extends beyond the cliched basic trading commissions. The company generates revenue through securities trading fees, interest income from margin lending, IPO distribution and underwriting, and an expanding suite of wealth management products. Margin financing (gambling financing) services generate highly attractive yields and contribute significantly to profitability due to their high-margin nature (lending to fanatic gamblers is a fantastic business, who would've thought). Furthermore, FUTU earns recurring income from client cash balances held in custody, which generate float income similar to a banking model. As the user base has been growing and maturing, FUTU has been successfully increasing average revenue per user (ARPU) by deepening engagement through premium tools, subscription services, and cross-selling opportunities in areas like structured products and fixed-income investments.

FUTU has been a consistent out performer in basically every single earnings over the last year and the never ending AI bubble is likely to prolong this even further. FUTU operates in and targets the most gambling addicted demography in the world and as such stands to gain immensely from the inability of the gentiles to control their primal (gambling) instincts.

(7) Kingboard Holdings/ Kingboard Laminates (1888.HK, 0148.HK)

Kingboard Holdings Limited is a diversified investment holding company with a significant presence in manufacturing and industrial sectors. It’s listed on the Hong Kong Stock Exchange under the ticker SEHK: 0148, Kingboard’s operations span multiple business segments, with its core activities centered around laminates and printed circuit boards (PCBs), chemicals, and property development. The company has built a reputation as one of the largest global producers of copper-clad laminates (CCL), primarily through its flagship subsidiary, Kingboard Laminates Holdings Limited (1888.HK).

Kingboard Laminates plays a critical role in the global electronics supply chain as a supplier essential substrates for printed circuit boards. The company operates many facilities in China manufacturing of high-performance laminates, including high-frequency and high-speed variants for 5G networks, artificial intelligence, and cloud computing. Their product range includes standard CCLs, pre-pregs and specialized solutions like metal-based laminates for heat dissipation and halogen-free materials for environmentally sensitive applications.

Kingboard Laminates generated approximately HKD 18 billion in revenue in 2024, supported by strong demand for advanced PCB materials and healthy capacity utilization across its plants. The laminate division typically enjoys gross margins between 20% and 25%, reflecting its ability to command premium pricing for high-specification products while managing production costs effectively. The AI capex frenzy has created a large PCB shortage resulting in large price increases and equity appreciation and Kingboard remains the cheapest way to capitalize on this trend.

Kingboard Holdings has one corporate governance issues with all sorts of schenanigans like loans to directors and questionable property investments thus creating a much deserved valuation discount vs Kingboard Laminates, its principal subsidiary. Do note that Kingboard Holdings’s market cap is worth slightly less than just their Kingboard Laminates stake and the market prices their other business at a grand sum of 0. It may be worth taking a stake into both the parent and the listco to take advantage of the arbitrage. Kingboard Laminates trades at a low TTM price to earnings of 24.89x and a forward price to earnings of 17x.

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This marks the end of part 1. Thank you so much for reading and as always if you have any feedback I’d be very happy to hear it and I’m always happy to debate and be proven wrong.