Outlook for the major asset classes of Zhongjin in 2025: Suggest balanced asset allocation, increase risk appetite, reduce allocation of safe assets, increase allocation of risky assets.

CICC released a research report stating that in the second half of 2024, the institution recommends staying true to the current situation, adhering to safe assets such as gold, bonds, and high dividend stocks to achieve good returns. Since September, the Political Bureau meetings have released strong signals, several ministries have introduced new growth-stabilizing policies, major foreign central banks including the Federal Reserve have entered a rate-cutting cycle, and with Trump winning the next US presidential election, there have been major changes in the global political and economic environment. Asset operations are showing new trends, and CICC believes that the time has come for adjusting asset allocation. They suggest balancing asset allocation, increasing risk appetite, reducing safe assets, and increasing exposure to risky assets. Due to the differences in macro environments between China and overseas, the path to rebalancing allocations is also different. Key points from CICC include: Embracing the new trend of asset operations. After the pandemic, the global economy has entered an era of "great differentiation", and China is experiencing four major structural turning points in demographics, real estate, globalization, and leverage. Asset operations have also undergone profound changes. In the "Outlook for Major Assets in 2024: Risks and Opportunities of Valuation Reassessment", CICC discusses the revaluation of the central tendencies of assets, focusing on three key changes in the risk-return characteristics of assets: 1) The correlation between Chinese stocks and bonds has turned negative, while the correlation between US stocks and bonds has turned positive; 2) Chinese stock volatility may enter a downward trend, while overseas stock volatility may increase; 3) The correlation between Chinese and foreign assets has decreased. At the strategic allocation level, as Chinese stock volatility decreases and the stock-bond correlation turns negative, hedging the same level of stock risk requires a lower allocation to bonds. Therefore, more assets can be allocated to stocks in the portfolio. The decreased correlation between Chinese and foreign assets has increased the risk diversification value of Chinese assets in global portfolios. CICC's stock-bond simulation portfolio shows that using the current risk-return characteristics of assets, the stock allocation in the Chinese stock-bond 60/40 portfolio can be increased to around 70%, while still maintaining a similar volatility to that of the previous 60/40 portfolio. Considering risk and return together, it is necessary to increase the allocation to Chinese stocks and reduce the allocation to safe assets. For overseas assets, as the stock-bond correlation turns positive, reducing the ability of bonds to hedge against stock risks, other safe assets are needed to diversify risks, increasing the medium to long-term value of gold allocation. China: Balancing stocks and bonds, with flexible tactics. From a strategic perspective, the Chinese stock allocation should be increased. When implementing tactical increases, it is necessary to conduct a comprehensive analysis of economic and market cycles. Currently, the "policy bottom" has been confirmed, the economic recovery cycle has been confirmed, supporting the shift of assets from bonds to stocks. However, due to the difficulty in predicting the intensity and pace of policies, the effectiveness of countercyclical policies under the new macro situation may be slow, and the value of increasing stock allocation may present a wave-like process. Asset prices may experience a period of "box shaking", with more frequent rotation between stocks and bonds and industries. In such a market environment, it is not advisable to make asset allocation adjustments in one go. CICC suggests first maintaining the balance between stocks and bonds, making tactical adjustments and rebalancing, and increasing stock allocation on dips. This article provides a simple strategy for tactical adjustment of stocks and bonds, using two core indicators - sentiment and technology - for stock-bond rotation, both of which outperform pure stock and pure bond indices. Overseas: Shifting from bonds to stocks, offensive followed by defensive. With the increased probability of Trump winning the next US presidential election and Republicans controlling both houses, Trump's policies of tax cuts and deregulation are expected to boost growth expectations, improve the business environment, and lead to a risk-on market trend. In the short term (1-3 months), CICC recommends focusing on an offensive asset allocation, over-weighting overseas stocks, and gradually reducing the allocation to overseas bonds. In the medium term, the overseas market faces double uncertainties of policy and economy, with inflation and growth being sources of risk: 1) Inflation risk: Trump advocates increasing tariffs, controlling immigration, and lowering tax rates. If policies are implemented quickly and lead to inflation pressures. Even if only considering the impact of increasing tariffs, institutions overseas generally estimate an increase in US inflation of over 100 basis points, and a decrease in growth of around 100 basis points. If there were no impact from Trump's policies, US inflation could have fallen to around 2% by 2025, supporting the continued rate cuts by the Federal Reserve. However, if inflation stops improving or even rebounds under Trump's policies, the Federal Reserve may end the rate cutting cycle earlier, or even consider raising rates. This could lead to a stagflation market, with both stocks and bonds under pressure, and the US dollar gaining an advantage; Gold can hedge against inflation risks, benefitting from a decrease in the credibility of the US dollar, and may also show relative performance. 2) Growth risk: If Trump's tax cut policy is implemented later relative to tariff and immigration policies, it could exacerbate downward pressure on growth; if Trump's policies are implemented later in general, with limited short-term impact on growth, the economy could continue to decline on the existing path, highlighting growth pressures. At this time, the Federal Reserve accelerates rate cuts, with bonds and gold gaining an advantage, and stocks and commodities under pressure. Taking into account both inflation and growth risks, CICC recommends transitioning to a defensive position in the medium term (3-6 months later), gradually reducing stock assets, and increasing safe assets. For the economy to maintain a balanced state while avoiding inflation and growth risks, the timing of Trump's policy combinations needs to be just right, which may be a high threshold and not the baseline assumption for CICC's medium-term asset allocation strategy. Asset allocation recommendations: Standard allocation to Chinese stocks and bonds, flexible tactical adjustments, initially over-weighting and then gradually reducing overseas stocks, gradually reducing overseas bonds, increasing gold allocation on dips, and maintaining a low allocation to commodities. The strategic value of Chinese stocks is increasing, and it is recommended to maintain a standard allocation, and choose tactical timing based on sentiment and valuation, increase positions during dips, and focus on opportunities related to economic growth, resilient external demand, and new dividends. Before the fundamental turning point in the economy, monetary policy in China is likely to remain loose, and bonds are not entirely against the wind. At the present stage of policy versus fundamentals, the interest rate curve for bonds may transition from flattening to steepening, recommending a standard allocation to Chinese bonds and shortening duration structurally. For overseas assets, with reduced uncertainty following Trump's victory, the market is in a risk-on trading phase, favoring stock performance in the short term (the next 1-3 months). However, in the medium term (3-6 months later), both growth and inflation risks are unfavorable for stocks, and high valuations and advancements in AI increase uncertainty. It is recommended to slightly increase overseas stock allocation in the short term, and reduce it at opportune times in the medium term. The short-term "Trump trade" is not favorable for bond performance, and CICC recommends gradually decreasing overseas bond allocation. If medium-term growth risks materialize, bonds can be incrementally increased. Gold can hedge against inflation risks and the credibility of the US dollar decline, potentially showing relative performance.Rising risks, benefiting from the decline in the credibility of the US dollar system, the medium-term allocation value remains high. Recently, interest rates have risen rapidly, with high risk sentiment, putting short-term pressure on gold, and it is recommended to increase positions on dips. Trump opposes the green transformation, advocates increasing oil and gas supply, reducing subsidies for new energy, and in the short term, global economy still in a downward trend, suppressing commodity demand, it is recommended to maintain a low allocation in copper and oil commodities."Tengo hambre" "I am hungry"