Hong Hao: These assets are the most significant opportunities for the next round. The US stock market may experience a major adjustment in the first half of next year.

Today (December 21), Hong Hao, partner and chief economist of Sinotrust Group, shared his outlook on the economy and markets for 2025 at the Alpha Summit. Hong Hao first discussed the US stock market, noting that this year, over 50% of the rise in the S&P index comes from 7 stocks, indicating a bubble in the market. However, bubbles tend to reinforce themselves when forming. The question is, when will it burst? This is a test of investors' timing ability. Hong Hao stated that in the first half of 2025, we may see a significant adjustment. But based on the still strong economic fundamentals in the US, this could be an opportunity to reposition. Hong Hao analyzed the relationship between exchange rates and markets. If you look at the direction of the Renminbi exchange rate and the performance of the Shanghai and Shenzhen 300, you will see that they are closely aligned. He believes that how exchange rates move next year will be crucial. Regarding the next investment opportunities, Hong Hao specifically discussed gold and cryptocurrencies. When the US dollar credit is challenged, gold stands in opposition to the dollar, forming a new currency system independent of the dollar. In this new system, the prices of all finite supply items continue to rise, most notably Bitcoin. For every 1% depreciation of the US dollar, the price of Bitcoin fluctuates by approximately 5-10%, and the price of gold fluctuates by 3-5%. Hong Hao emphasized that assets such as gold and cryptocurrencies present significant investment opportunities in the next round of market trends. The Investment Report (liulishidian) summarized Hong Hao's insights as follows: In the first half of 2025, the US stock market may see a significant adjustment 50% of the increase in total market value worldwide this year comes from 7 stocks, and over 50% of the rise in the S&P index is from 7 stocks. Is this market in a bubble? I believe so. Bubbles reinforce themselves, making them difficult to burst with just one pinprick. I believe that in the first half of 2025, we may see a significant adjustment. But this could be an opportunity for repositioning, as the US economy's fundamentals have not shown major issues. We can look at the US semiconductor cycle. When we compare the US semiconductor cycle with the economic cycle in China, we see that the trends of the S&P and the US semiconductor cycle are diverging. A few days ago, a very important US semiconductor company, Broadcom, saw its market value increase by $320 billion in two days, equivalent to more than 20,000 RMB. This means a new 'cosmic line' emerged in the semiconductor industry within two days. However, during the management's future outlook presentation, they stated that by 2027, their profits from AI will grow by over 30%, but it's only the end of 2024 now. Talking about the end of 2027 already accounts for 2-3 years ahead. This clearly shows the bubble effect on the right tail of the market. But when will the bubble burst? I believe we will see clear results in the next half year.The percentage of net exports as a share of global net exports, its fluctuations are very regular.Its first peak appeared in 2007, at the time when A-shares were at 6000 points. The second peak appeared around 2016 or 2017, when Trump first took office, before the trade war in 2018. The third peak appeared in 2021 or 2022, when China's share of global exports reached a new peak. Now, out of China's $16 trillion in exports, roughly $11 trillion worth of exports are high value-added goods. During the previous trade war, in the 301 tariff investigation, our Chinese exports were precision machine tools, semiconductors, heavy machinery, and so on; what we bought from the United States was soybeans, corn, beef, and other agricultural products. At that point, we realized that we are the true manufacturing power, while the USA is an agricultural power. American farmers receive very alarming subsidies from the government each year, which has also contributed to the current structure of the economy. Therefore, if we fit China's export cycle with the changes in China's A-shares and foreign reserves, without needing any statistical knowledge, you can see that China's export cycle, market operation cycle, and foreign reserve changes are basically consistent. Each cycle from low point to high point to low point lasts approximately 7 years. For example, A-shares from 2005 to 2012, from 2013 to 2020, and from 2020 to the present. If this cycle continues to hold, then next year, China's net exports as a percentage of the world may further decline. Or, our China export growth rate, due to the possible trade war next year, may slow down compared to other countries' export growth rates. Therefore, your proportion in the system will decrease. If this is the case, the correlation is quite evident, and the analysis is left to you. The deviation between urban investment bonds and the stock market trend Where are the opportunities for next year? Just now, we talked about the situation where the fat tail bubble is constantly evolving and reinforcing itself on the right side. In addition, the entire market has seen a quantified shock, where the transformation of price fluctuations reflects new strategic opportunities in the future. Let's look at the comparison between Chinese urban investment bond prices and the Shanghai and Shenzhen 300, before 2022, these two moved together, both reflecting market risk preferences, and the volatility of urban investment can sometimes be more intense than that of the stock market. However, after 2022, we see that the trends of the two are completely opposite. The best strategy this year is to continuously long urban investment bonds, and your returns this year will far exceed buying large cap stocks. Urban investment bonds have received support for debt conversion from the government, and the belief behind urban investment is the belief in our country's entire balance sheet. At this time, for a risk-averse investor, are you going to invest in an asset category with the backing of national credit like urban investment? Or something else? This conclusion is left to everyone to think about. Gold and cryptocurrencies Are the most significant opportunities in the next round Finally, I want to talk about gold. Let's look at gold, the ratio of the US trade deficit to GDP, and the yield of the US 10-year treasury bond. Previously, the upward trend of the US trade deficit and the trend of the yield of the US 10-year treasury bond were basically in sync. However, after 2021, there was a very obvious deviation between the two. That is to say, in the new arrangement, in the new monetary credit currency system, Gold has reemerged as the opposite of the US dollar, forming a new currency system independent of the US dollar. Therefore, we see that in this new system, the prices of all limited supply items are constantly rising, with the most obvious being Bitcoin. For every one percent depreciation of the US dollar, it equates to roughly a 5-10 point fluctuation in the price of Bitcoin, or a 3-5 point fluctuation in the price of gold. This is very clear. Whenever the price of gold drops, many readers leave comments below my Weibo, Gold has plummeted, should I sell? Should I not buy anymore? We have gone from talking about it from $1600 to $2800, this pattern has already formed, it has formed a new system independent of the US dollar. In this new system, as we continue to generate foreign exchange through Chinese exports, do you think we will buy US bonds or gold? It's quite simple. So in November, the Chinese central bank resumed increasing its holdings of gold, and China's holdings of US bonds now account for less than 3% of the total size of US bonds, which is very interesting. Assets like gold and cryptocurrencies are the most prominent investment opportunities in the next round. Of course, they will also experience severe fluctuations. Because a change in faith takes time. This change in faith has only just begun, less than 3 years, a little over 2 years. Gold is a legacy of humanity for thousands of years, and Bitcoin since 2008 is a new challenge to the existing central credit currency system, with its credit given by users themselves. As more and more users change their faith and join this network, its network effect will become more and more obvious. Therefore, its price, with the expansion of users, the diffusion of network effects, will continue to rise. It's that simple. So, not only is the Chinese central bank buying gold, central banks in all emerging markets are buying gold, including Russia, which is also buying gold like crazy. All of this tells us that in the next stage, we may not be able to view this matter with old-fashioned thinking. For example, the "fork" between the US dollar and US bonds, the "fork" between gold and US bonds, the "fork" between the US S&P and the US semiconductor cycle, all of this tells us that a new paradigm is emerging, and new large-scale fluctuations are occurring. Often, at these times, it is when we have the opportunity to make big money. This article is reprinted from "Liuli Investment Report", author: Hong Hao, GMTEight editor: Liu Xuan.