BNP Paribas reported China’s GDP growth at 5.0% year-on-year in Q1 2026, up from 4.5% in Q4 2025. It also put full-year 2025 growth at 5.0%, with a moderate slowdown expected in 2026.
The bank described a K-shaped pattern, with strong exports alongside weak domestic demand. It also pointed to an ongoing property crisis.
BNP Paribas said authorities are expected to keep fiscal and monetary policy supportive, but with modest measures. This is expected to continue even if the global environment becomes less supportive.
Deflationary pressures are expected to decline in 2026. BNP Paribas linked this to higher global energy prices and anti-involution measures introduced by the authorities.
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We see the confirmed 5.0% Q1 growth as evidence of a two-speed economy, creating clear opportunities for derivative traders in the coming weeks. This K-shaped recovery suggests pairing long positions on export-oriented industrial stocks with short positions on domestically-focused consumer discretionary sectors. This pattern is reminiscent of the divergence we saw in early 2025, when strong export data masked underlying weakness at home.
The persistent property crisis continues to be the primary drag on the domestic economy, making put options on major real estate developers an attractive hedge. New home prices in China’s 70 largest cities fell by 0.5% month-on-month in March 2026, extending a decline that has been largely uninterrupted since mid-2024. Since authorities are only providing modest support, we do not expect a sharp reversal of this trend.
With deflationary pressures easing, we should consider call options on companies in the energy and materials sectors. The Producer Price Index (PPI) just posted its first positive year-over-year reading in February 2026, a significant change after being in deflationary territory for all of 2025. This shift suggests firms with pricing power, particularly those linked to global commodity prices, are set to benefit.
The conflicting economic signals will likely keep the yuan in a stable range against the US dollar. Strong exports provide support, but the weak domestic picture and cautious policy stance cap any significant appreciation. This environment is ideal for selling volatility, making a short strangle on USD/CNH options a viable strategy to generate income.
