BOFA: American exceptionalism is evolving into global rebalancing, Chinese assets expected to lead gains.

In the latest research report released on Friday by Michael Hartnett, Chief Investment Strategist at Bank of America, the trade policy of the United States is giving birth to a "new world order" - investors are abandoning the US dollar and US stocks and turning to international assets. He wrote in the report that the Trump administration's economic hot policy is creating a new ABD transaction - "anything but dollar." In this context, the American exceptionalism is evolving into global rebalancing. Hartnett pointed out that this will boost international stock markets, and commodity-producing countries in emerging markets are also expected to benefit from the increased demand brought by artificial intelligence. He also noted that investors are still under-allocated to Chinese and Indian assets. The flow of funds confirms Hartnett's views. According to data from EPFR Global cited by Bank of America, European, Japanese, and other developed market equity funds have attracted a total of $104 billion in funds this year, far exceeding the $25 billion flowing into US equity funds. Since Trump announced historic tariffs in April, US assets have been volatile, and concerns have increased among investors about the end of the United States' dominance in the global economy and financial markets. Major asset rotation: historical laws and future trends Hartnett also stated in the research report that in the past 50 years, every major political, geopolitical, and financial event has triggered a major shift in the main trends of the asset markets: 1971: The collapse of the Bretton Woods system, the beginning of the era of stagflation, the outbreak of the oil crisis, and the end of the "fancy 50" bull market... The new long-term leading assets were gold and physical assets (with a gain of 417% from 1971-1980), while bonds and financial assets performed weakly (rising only 67% during the same period). 1980: The policies of Reagan/Thatcher/Volcker were implemented, inflation peaked (with an inflation rate of 14.8% in March 1980), and government intervention peaked... The long-term leading asset was bonds (from 1980-1985, the yield on 10-year US Treasury bonds dropped from 16% to 6%). 1989: The fall of the Berlin Wall, the beginning of the era of globalization, and the trend of deflation becoming apparent... The long-term leading asset was US stocks (in 1989, the relative valuation of US stocks to global stocks fell to a 75-year low), while commodities performed poorly (copper was the only asset with a negative return in the 1990s). 2001: The outbreak of the 9/11 attacks, China joining the World Trade Organization, and the start of the era of "China and the rise of BRICS countries"... The US dollar and technology stocks performed weakly, while emerging markets and commodities became the leading assets, and the financial and resource sectors also strengthened. 2009: The global financial crisis erupted, the era of quantitative easing began, and stock buybacks became the main trend in the market... The new long-term leading assets were US stocks (with a 10-year rolling return hitting a 90-year low in February 2009), private equity and growth stocks (from 2008-2020, the proportion of the technology/telecom/healthcare sectors in the MSCI Global Index market value rose from 24% to 44%, while the finance/energy/materials sectors fell from 44% to 20%). 2020: The outbreak of the COVID-19 pandemic, unprecedented monetary easing (QE) and fiscal stimulus (US government spending increased by 56%), significant growth in nominal GDP (over 50%), the rise of US exceptionalism... The leading assets were gold, the "Big Seven," and Japanese and European bank stocks (ending deflation); bonds (30-year US Treasury bonds fell by 50% from 2020-2023) performed poorly. Future major asset rotation: core predictions Bank of America believes that the next round of long-term leading assets will be emerging market stocks and small-cap stocks. US large-cap growth stocks US small-cap value stocks: The market trend is shifting from elitism to populism, from capitalism to government intervention, from the service industry to manufacturing, and from globalization to localization... Trends in small-cap stocks related to ordinary people are favored over large-cap stocks related to Wall Street; coupled with the soaring cost of the AI arms race (in the past 5 months, large-scale AI cloud service providers have issued $170 billion in bonds, compared to an annual issuance of only $300 billion from 2020-2024, with credit spreads continuing to widen), and the US government plans to keep the yield on 30-year Treasury bonds below 5%... US small-cap value stocks relative to large-cap growth stocks will experience a major long-term turning point; US assets Emerging market assets: The new world order is leading to a global bull market, the landscape of US exceptionalism is shifting towards global rebalancing, and the US's "hot economic operation" policy is driving a new round of "anything but dollar" transactions... International stocks will become the leading assets, especially in emerging markets - the development of artificial intelligence will boost demand for commodities, and emerging markets are the main producers of commodities; in addition, there is still a serious lack of investment in the assets of the two major global economies, China and India. The report points out that it is important to note that shares of Chinese banks have quietly hit an 8-year high... with the efforts of Chinese policies and the end of the trade war, the next leader of the global "end of deflation" trade is likely to be Chinese assets (banks, real estate, consumption), which will also signal a significant rotation of funds from Chinese bonds to Chinese stocks. This article is reproduced from "Caishijing"; GMTEight Editor: Chen Siyu.