Guidance...A Conversation China’s Market Is Forcing Us to Have

For much of the past three years, the dominant question from foreign investors has not been about growth rates or sector rotation. It has been more existential: Is China investable?

The headlines have been relentless. Real estate distress. The education crackdown. Demographic decline. And, as if to close the chapter, the re-escalation of tariffs in 2025 under President Trump—described by some as the final nail in the coffin.

And yet, markets did not follow the script.

Despite the weight of skepticism, Chinese equities did not unravel. In fact, from deeply depressed levels, they rebounded. The drivers were not mysterious. Valuations had fallen to levels that already priced in a great deal of pessimism. Policy support—monetary easing, targeted property measures, fiscal spending—provided a floor. On the corporate side, structural themes began to assert themselves: AI applications, semiconductors, advanced hardware, fintech infrastructure, wealth management platforms, renewable energy, and next-generation consumer brands.

What we have called the “2025 China Undervalued Innovation Story” caught many by surprise. For those who were paying attention, the story was less about a broad macro resurgence and more about differentiated growth—companies executing within clear structural lanes.

Which leads to the natural next question: What will 2026 deliver?

To answer that, investors will do what they always do in periods of transition: listen closely. To policymakers. To earnings calls. To forward-looking statements. To management tone.

And that is where guidance becomes central.

Should Companies Provide Guidance?

The debate around guidance is perennial, but in uncertain markets it becomes strategic.

From a valuation standpoint, guidance serves as an anchor. When management sets explicit expectations—on revenue, margins, earnings or strategic milestones—it reduces the dispersion of investor assumptions. Lower dispersion often translates into lower volatility. When companies remain silent, the vacuum is filled by fragmented “street” data, channel checks, rumors and extrapolations. Volatility becomes a function of guesswork.

From a transparency standpoint, guidance signals accountability. When leadership articulates targets ahead of a reporting period, it invites scrutiny. That discipline tends to foster trust. Over time, trust compresses risk premia.

This is particularly relevant for companies without extensive sell-side coverage. In the absence of bank analysts constructing models and publishing updates, the company’s own communication becomes the primary framework through which the market understands its trajectory. In such cases, thoughtful guidance is not a luxury—it is part of market access.

That said, there are legitimate reasons to withhold guidance. When management has genuinely low visibility on revenues—because of regulatory uncertainty, one-off events, or highly volatile demand—issuing precise targets can mislead rather than inform. Investors generally accept the absence of guidance if the rationale is clearly articulated. Transparency about uncertainty is still transparency.

There is also a middle ground: wide-range guidance. A broader band reflects limited visibility while still offering directional clarity. The range itself becomes informative, signaling the boundaries within which management believes outcomes are realistic.

The decision, therefore, is not binary. It is contextual. The real question is whether guidance—tight, broad, or qualitative—improves the market’s ability to value the company rationally.

What Form Should Guidance Take?

In practice, most companies default to financial guidance. Revenue growth, margin expansion, net income, EPS. When the range is tight and supported by clear operating assumptions, the market often rewards that precision. Investors appreciate specificity.

Alongside the numbers, effective management teams articulate the conditions required for guidance to materialize—pricing dynamics, cost inputs, regulatory developments, capacity ramp-ups. These explanations matter as much as the targets themselves.

An alternative approach focuses on value-creation drivers rather than end metrics. Instead of forecasting EPS, management may guide on the commissioning of new factories, distribution network upgrades, product launches, customer acquisition metrics, or R&D milestones. This framework works particularly well when the company is covered by sophisticated analysts capable of translating operational data into financial scenarios.

Such guidance empowers analysts to construct assumption-driven models and perform sensitivity analysis. It shifts the conversation from short-term earnings to structural capacity building.

At the other end of the spectrum lies long-term guidance—two to five years. While it signals strategic intent, markets often discount distant projections unless accompanied by credible interim checkpoints. Long-term targets without near-term accountability can feel abstract.

Ultimately, the form of guidance should align with the company’s stage of development, investor base, and visibility profile.

How Often Should Guidance Be Updated?

There is no universal rule.

Companies offering tight financial ranges often update quarterly, semi-annually, or annually. Consistency builds credibility. Deviations are carefully explained.

Firms providing operational or milestone-based guidance may supplement periodic updates with discretionary announcements—when a major contract is signed, a product is commercialized, or a regulatory approval is secured.

Sometimes guidance becomes reactive. If analyst reports are materially mischaracterizing the company’s outlook, management may feel compelled to clarify. In these situations, selective silence can be more damaging than proactive communication.

Another mechanism is the pre-announcement: a disclosure of material information likely to impact investment decisions before the formal reporting cycle. Used judiciously, it reduces surprise risk and demonstrates governance discipline.

Frequency, therefore, should be determined by information flow. Guidance should evolve when the underlying facts evolve—not merely to fill a calendar.

The Case for a Policy-Guided Guidance (PGG)

Whether guidance is scheduled or discretionary, the investor relations function should not operate ad hoc. A formal Policy-Guided Guidance (PGG) framework provides structure.

A PGG document typically defines:

• The categories of periodic guidance (quarterly, semi-annual, annual).
• The triggers for unscheduled updates.
• The approval process involving finance, legal, and executive leadership.
• The documentation standards supporting each disclosure.
• The legal boundaries to ensure compliance with listing rules and market abuse regulations.

In other words, it institutionalizes discipline. It protects the company from inconsistency and from inadvertent selective disclosure. It also gives the IR team clarity—reducing hesitation in moments when communication is necessary.

In volatile geopolitical and macro environments, the cost of miscommunication rises. A PGG is not bureaucracy; it is risk management.

Looking Ahead

If 2025 reminded investors that China’s market is more nuanced than the headlines suggest, 2026 will test conviction. Policy signals will matter. Corporate execution will matter more. And guidance—its presence, form, and cadence—will influence how capital allocates across the opportunity set.

Companies that communicate clearly, align expectations realistically, and institutionalize their disclosure practices are more likely to earn valuation resilience.

Markets dislike uncertainty. They tolerate risk. Guidance, when done thoughtfully, converts the former into the latter.

And in a world where narratives shift quickly, that distinction may define performance.

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Further Reading

For Investor Relations professionals and CFOs interested in exploring the empirical evidence behind guidance — its impact on valuation, volatility, and the broader perception of equity stories — the following academic research provides valuable insight:

• Market Reaction to Earnings Announcements Under Different Volatility Regime
• Cost Stickiness, Earnings Forecast Accuracy, and the Informativeness of Stock Prices About Future Earnings: Evidence from Chin
• Disclosure Strategies for Management Earnings Forecasts: Insights from the Corporate Life-Cycle Perspective
• Does Earnings Guidance Affect Market Returns? The Nature and Information Content of Aggregate Earnings Guidance
• On Guidance and Volatility
• Earnings Guidance and Market Uncertainty