According to a research report from CICC, the restructuring of the international monetary order is expected to remain the dominant theme for global assets in 2026. The year 2025 marked an acceleration in this restructuring, and CICC anticipates the trend will persist into 2026. These dynamics are seen as supportive for a continued bull market in Chinese equities and gold, and are favorable for Chinese stocks outperforming their U.S. counterparts. The recommended asset allocation is to overweight Chinese equities and gold, maintain a standard weighting in commodities, U.S. equities, and U.S. Treasuries, and underweight Chinese government bonds. CICC's primary views are outlined below.

A review of global and Chinese assets in 2025 reveals that gold and Chinese equities led gains globally, with non-U.S. assets outperforming dollar-denominated assets amid a depreciating U.S. dollar. Key characteristics of major global asset performances, measured in U.S. dollars, include: 1) Gold was the top performer, rising 67% in 2025, marking its largest annual gain since 1980. Copper, which possesses strong financial attributes among non-ferrous metals, also posted significant gains. 2) The U.S. dollar depreciated, leading to outperformance by non-U.S. assets. The dollar was one of the worst-performing assets last year, with the U.S. Dollar Index dropping nearly 10%. While the S&P 500 rose 16%, emerging market equities surged 31%, outperforming U.S. stocks for the first time since 2017. 3) Chinese equities ranked among the top performers globally. The ChiNext Index, benefiting from AI industry trends, gained nearly 50%, the CSI 300 Index rose 18% for the year, and the Hang Seng Index advanced 28%, all representing the largest annual gains in nearly five years and outperforming the U.S. market. In other assets, crude oil fell 18% to become the worst performer, while U.S. Treasuries saw significant gains, resulting in a scenario of simultaneous strength in both global stocks and bonds. Overall, asset performance throughout the year can be attributed to two core themes: first, U.S. dollar weakness, which historically benefits gold and non-U.S. assets; and second, the AI tech revolution, which not only drove strength in the tech sectors of Chinese and U.S. markets but also boosted prices of related resources like copper. Combining these themes, the underlying driver is fundamentally linked to the restructuring of the international monetary order.

Under this new monetary order, China's market risk premium has corrected, with growth and small-cap stocks showing relative outperformance. Against the backdrop of monetary order restructuring, the Wind All-Share Index rose approximately 28% in 2025. Breaking this down, earnings growth contributed around 5 percentage points, while rising risk-free rates had a negative impact, meaning the majority of the market's gains came from a decline in the risk premium. In a report published in March 2025 titled "Tech Narratives, Geopolitical Reassessment, and Global Capital Reallocation," CICC proposed that changes in China's tech narrative and the global geopolitical narrative would drive a reassessment of Chinese assets, particularly tech assets. Structurally, catalyzed by the AI industrial revolution and a reversal in China's innovation narrative, growth styles significantly outperformed. Sectors with markedly improved earnings expectations, such as non-ferrous metals, communications, and electronics, led the gains. Furthermore, against a backdrop of improved market risk appetite, retail investors entering the market became a key source of incremental capital, leading to relative outperformance of small-cap styles.

The reassessment of Chinese assets under the new order exhibits four noteworthy new paradigms. Besides being driven by the new monetary order, the Chinese market itself is benefiting from shifts in new drivers and a new ecosystem, specifically manifested as follows: 1) The essence of this rally is a bull market driven by the re-rating of tech assets. In early 2025, CICC estimated the dynamic P/E ratio of leading Hong Kong-listed tech companies was only about 12x, representing a discount of approximately 60% compared to U.S. peers, potentially linked to market beliefs that "only the U.S. could achieve AI breakthroughs" and U.S. technology restrictions. Now, the narrative of U.S. dominance in AI has been challenged, and the innovative capabilities of Chinese companies are being re-recognized. By the end of 2025, the dynamic P/E for the U.S. tech giants was 29x, while that for leading Hong Kong tech firms had recovered to 18x, significantly narrowing the gap. The tech sector became the primary contributor to market gains. 2) The influx of medium- to long-term capital into the A-share market accelerated. In 2025, regulators focused on promoting medium- to long-term capital participation, with six ministries jointly issuing a plan specifying that, starting from 2025, 30% of new annual insurance premiums should be invested in A-shares. The accelerated entry of insurance capital has taken its first step: by the end of 2025, insurance holdings of stocks and securities investment funds grew to 5.7 trillion yuan, an increase of 1.6 trillion yuan from the end of 2024, with the equity allocation ratio reaching 14.8%, breaking above the central range observed since 2017. 3) The "asset shortage" dynamic continues to deepen, highlighting the attractiveness of equities. With property prices at low levels, Yu'ebao yields below 1%, three-year time deposit rates around 1%, and government bond yields under 2%, the CSI 300 dividend yield of 2.7% is attracting household capital into the stock market. CICC's banking team estimates that approximately 75 trillion yuan in household time deposits will mature in 2026, creating significant reallocation pressure for these funds. Whether they further flow into equity markets warrants attention. 4) Southbound capital flows into Hong Kong stocks increased, and the price gap between dual-listed shares narrowed. As external risks eased and the influence of domestic capital rose, southbound flows through Stock Connect recorded a net inflow of 1.4 trillion Hong Kong dollars in 2025. The proportion of southbound holdings in Connect-listed stocks further increased to 15%, significantly boosting their influence on the Hong Kong market. Consequently, mainland capital is making more flexible choices between the two markets based on fundamentals and valuations, with the AH premium narrowing from a peak of around 60% to less than 20%. In summary, under the environment of international monetary order restructuring in 2025, the high growth and increasing share of China's new economy sectors have become new drivers for the capital market, while the capital environment and cross-market investment form a new ecosystem, both being indispensable factors for future assessments of the Chinese market.

From the perspective of monetary order restructuring, three major consensuses have emerged for 2026. After a year of market evolution, CICC identifies three key market consensuses: first, the bull markets in A-shares and Hong Kong stocks will continue; second, the gold bull market will persist, with opportunities also present in commodities; third, U.S. stocks may underperform Chinese assets. CICC believes that understanding the underlying logic behind these consensuses is crucial for judging the pace and sustainability of future market trends, particularly for resolving key disagreements. Popular explanations for the current market consensus contain several contradictions. Regarding the cause of the Chinese equity bull market, the common view attributes it to household deposit migration or a low-interest-rate environment and regulatory support for capital markets. However, high growth in household deposits began in 2022, and low rates and regulatory support are not new, making them inadequate explanations for the 2025 rally trigger. Crucially, deposit migration is often a result, not a cause, of market gains, and households tend to adopt a wait-and-see approach during market volatility. For the gold bull market, the popular logic centers on deglobalization amid frequent extreme events and elevated geopolitical risks. However, the simultaneous rise of U.S. stocks (a risk asset) and gold contradicts a narrative solely driven by geopolitical risk pricing. For U.S. stock underperformance relative to Chinese stocks, common explanations point to weaker U.S. economic performance, high U.S. equity valuations, and AI bubble concerns. Yet, U.S. nominal economic growth remains relatively high, and U.S. equity valuations have been significantly higher than A-shares since 2022, making them weak support for future underperformance logic. CICC posits that a common thread runs through these three consensuses. In a June 2025 report titled "Asset Changes Under Monetary Order Restructuring," CICC proposed that the international monetary order is accelerating its restructuring. The forces of this structural shift and capital flow are far more powerful than temporary changes in any single market or country's fundamentals, which CICC identifies as the common thread linking the three consensuses.

CICC believes the current A-share market may be better positioned for a slow bull market than at any time in history. A common market debate revolves around "slow bull" versus "fast bull" scenarios. The prevalent view suggests "there is nothing new under the sun," arguing that A-shares cannot escape past bull-bear cycles, making timing the 2026 peak critical. In a report published at the beginning of the year titled "How Can a 'Bottomed but Topped' Slow Bull Form?", CICC analyzed that historically, A-shares have often experienced "short bulls and long bears," prone to rapid rises that透支 future expectations. The monthly average gain for the CSI 300 during bull markets was 3.2%, significantly higher than the S&P 500's 1.9%, and the frequency of large monthly gains in A-shares ranks high among major global markets. However, CICC argues that current conditions may be more conducive to a slow bull market than ever before, supported not only by the "new order" of international monetary restructuring but also by positive changes in "new drivers" and a "new ecosystem" within the A-share market. Specifically: 1) Fundamentally, economic transformation and new quality productive forces are creating "new drivers." China's economic cycles have historically been shorter than the global average. Since 2000, a complete Chinese economic cycle averaged about 4 years, compared to 8 years for the U.S. and 6 years for OECD countries. China's faster cycle operation was closely related to the high-leverage development model and the "fiscal accelerator" effect of local government land finance. However, the financial cycle has been downtrending for over 8 years since 2017, nearing the international average of 8-10 years, and the property sector's share of the economy has significantly declined. CICC believes that with strengthening fundamental resilience, cyclical fluctuations are expected to stabilize. Furthermore, new quality productive forces are gradually becoming a new economic driver, reflected in the internal sector structure of the stock market: the share of new economy areas related to AI and global expansion is continuously increasing. In the first three quarters of 2025, the profit contribution of new economy sectors within non-financial enterprises approached 40%, and their free-float market capitalization share was nearly 60%, helping to reduce the market's pro-cyclical volatility and providing new growth momentum. 2) Institutionally, A-shares are forming a "new ecosystem" with a more balanced investment and financing landscape. Historically, A-shares leaned more towards being a "financing market." The 2024 "New National Nine Articles" pushed companies to increase dividends, and corporate free cash flow levels are at historically optimal states, leading to significantly improved dividend payouts. In 2024, the dividend scale from A-share companies' free-float shares surpassed IPO and secondary financing amounts, indicating continuous optimization of market ecology. 3) In terms of capital, multiple forces are creating a positive feedback loop, forming a "new ecosystem." Past high volatility in A-shares was associated with a lack of long-term capital and a high proportion of retail investors. 2025 became the first year of accelerated medium- to long-term capital inflows. Driven by policy, the equity allocation ratio of insurance funds broke through previous central levels by end-2025; Central Huijin, as the "national team," has a mature market-stabilizing mechanism that prevents both sharp declines and excessive surges; measures for high-quality development of public funds were implemented, promoting a focus on medium- to long-term performance assessment; amid the "asset shortage," household demand for property allocation has decreased, while demand for potential medium-to-high return assets like equities remains strong. Multiple forces are driving capital into the market with better sustainability than before, favoring the formation of a slow bull market.

Following two consecutive years of valuation repair, there remains room for further valuation expansion. Another common debate concerns the lack of significant earnings improvement in this bull cycle, as market gains in 2024 and 2025 were primarily driven by valuation repair. For the bull market to continue in 2026, significant earnings growth is often deemed necessary. CICC believes the implications of monetary order restructuring for capital markets differ from past earnings-driven rallies. The core lies in investors re-evaluating China's competitiveness and seeking new allocation opportunities, corresponding to a reassessment of Chinese assets and investor confidence. While the current P/E valuation levels for A-shares and Hong Kong stocks are not low (above the 80th percentile since 2010), in a low-interest-rate and "asset shortage" environment, cross-asset comparisons deserve greater emphasis. The equity risk premium for A-shares has only recovered to its historical average, and the dividend yield of major indices still holds a significant advantage over bond market yields. Representative Chinese tech assets still trade at a significant discount compared to U.S. peers. CICC believes that even if corporate earnings do not achieve high growth, the trend of monetary order restructuring could support further valuation expansion for Chinese stocks in 2026. The probability of a fundamental recovery is increasing, with a potential "Davis Double Click" under optimistic scenarios. Challenges remain for domestic price and corporate profit recovery, influenced by the downswing in the financial cycle, weak income expectations, and local government debt issues, leading to relatively insufficient aggregate demand. However, positive factors are gradually accumulating. First, the duration of the financial cycle downturn is nearing international experience, suggesting future pressure from the property cycle adjustment may ease. According to CICC's property team, cities like Shanghai and Beijing with low social inventory might see a cycle inflection point earlier. Second, most industries have significantly reduced capital expenditure since 2022 and are gradually entering a capacity reduction cycle. Looking at listed companies in fixed-asset investment-related sectors, the number with negative growth in construction-in-progress has increased notably since 2023. By Q3 2025, nearly 70% of sectors saw their construction-in-progress growth turn negative. Considering that industrial added value and exports maintain relatively high growth, CICC expects supply-demand gaps in越来越多的 industries to narrow, aiding price stabilization and profit improvement transmission. Under an optimistic scenario, Chinese equities could achieve a "Davis Double Click" of both earnings and valuation growth.

Will the "Warsh Shock" undermine expectations for U.S. dollar easing? The "Warsh Shock" triggered significant volatility in global assets, raising concerns about a breakdown in the U.S. dollar liquidity narrative. The unexpected nomination of Warsh by Trump in late January for the next Fed Chair, coupled with Warsh's advocacy for "rate cuts + balance sheet reduction," perceived as hawkish by markets, caused major asset swings. The market fears that if Warsh successfully shrinks the Fed's balance sheet, it could partially restore dollar credibility and slow the "de-dollarization" process, directly challenging the dominant theme of U.S. dollar liquidity. This could create headwinds for global stocks, bonds, commodities, gold, and other assets. CICC believes Warsh is unlikely to immediately reverse the Fed's easing policy direction or the market trend in the short term; the U.S. dollar liquidity theme has not been substantially shaken. CICC cautions against linearly extrapolating Warsh's past policy stance. Instead, political, economic, and market constraints must be considered to prudently assess the feasibility of his proposals and project future policy priorities and sequence. Firstly, CICC judges that the Fed is unlikely to aggressively reduce its balance sheet in the short term. Logically, the size of the Fed's balance sheet is fundamentally determined by the banking system's liquidity needs, which are dictated by excess reserves, which in turn are influenced by regulations like Basel III's reserve requirements, liquidity rules, and TLAC. Therefore, Warsh would face significant constraints in balance sheet reduction, requiring comprehensive changes to the current regulatory framework. With the Fed's balance sheet at $6.7 trillion, shrinking it to the pre-pandemic level of $4 trillion without deregulation appears difficult. Additionally, Fed balance sheet reduction would "drain" liquidity from the financial system, lowering bank reserve levels. Insufficient reserves could lead banks to reduce market-making activities in money markets and Treasury markets, causing financial system liquidity shortages and imposing market-level constraints. Secondly, Warsh's short-term policy focus might be on rate cuts, and the extent of future Fed easing could exceed expectations. Trump is keen for the Fed to lower rates, so further cuts align with political constraints. Simultaneously, the Trump administration needs to reduce debt servicing costs. If Warsh is unwilling to engage in QE or "balance sheet expansion," breaking the existing fiscal-monetary coordination would require the Fed to support Treasury issuance in other ways. CICC sees a potential expedient as the Fed implementing larger rate cuts while the Treasury adjusts its issuance structure towards shorter-term bonds. The next Fed chair's short-term policy focus might thus be rate cuts rather than balance sheet reduction, leaning dovish rather than hawkish, with the possibility of cut magnitude and pace significantly exceeding expectations. The market's initial interpretation of Warsh as simply hawkish, leading to asset corrections, may reflect a significant expectation gap. Regarding Warsh reversing de-dollarization trends, CICC considers the possibility even lower. His policies face constraints from political, market, and other factors. More importantly, the restructuring of the global monetary order and the erosion of dollar credibility result from multiple factors, particularly current U.S. administration policies that continue to accelerate de-dollarization.

The restructuring of the international monetary order remains the dominant theme for global assets in 2026. Having accelerated in 2025, CICC expects this trend to continue, supporting extended bull markets in Chinese equities and gold and favoring Chinese stocks over U.S. equities. Addressing current market disagreements, CICC believes this trend provides key arguments: First, regarding the pace of the Chinese equity bull market, the establishment of the "new order" through monetary restructuring is gradual, involving a process of global capital updating its perceptions. This logic is still strengthening, favoring a slow bull market, and the reassessment of Chinese assets remains underway. Second, concerning the impact of the "Warsh Shock" on Fed easing, considering political, economic, and market constraints, the Fed currently lacks the conditions for aggressive balance sheet reduction. Furthermore, Warsh might push for Fed rate cuts exceeding market expectations, unable to reverse the issues of declining Fed credibility and U.S. dollar asset safety. Third, regarding U.S. stock AI bubble risks, CICC believes that since AI can tangibly enhance productivity without systemic leverage or debt risks, against the backdrop of global capital reallocation, valuations for quality assets often enjoy higher tolerance, suggesting overall performance may not be poor.

Asset Allocation Recommendation: Overweight Chinese equities and gold; Standard weight commodities, U.S. equities, and U.S. Treasuries; Underweight Chinese government bonds. Based on the above analysis, CICC's ranking for 2026 global asset allocation is: Overweight: 1) Chinese Equities: International monetary order restructuring promotes global capital reallocation. CICC remains positive on the reassessment of Chinese equities. Furthermore, factors supporting fundamental and earnings improvement are increasing, with a potential Davis Double Click under optimistic scenarios. Sector-wise, four themes are favored: a) High-Growth Sectors: AI is expected to gradually enter the industrial application phase. Opportunities exist in infrastructure like computing power, semiconductors, cloud computing, and applications like robotics and autonomous driving. Commercial aerospace, innovative drugs, and energy storage batteries are also entering growth cycles. b) Global Demand Breakthrough: Overseas expansion remains a key growth opportunity, seen in successful export areas like engineering machinery, commercial buses, power grid equipment, and gaming, as well as sectors benefiting from geopolitics, such as non-ferrous metals, oil & gas price increases, and earnings improvements. c) Cyclical Reversals: Sectors like chemicals, petrochemicals, oil services, and new energy present reversal opportunities due to converging supply-demand gaps. d) High Dividend Yields: While likely to underperform in a growth-oriented environment, they offer good defensive value in a low-rate environment. In finance, the insurance sector is favored; in non-finance, companies with strong free cash flow and sustainable dividends are preferred. 2) Gold: Models from CICC's asset allocation team previously indicated gold prices were over $1500 above model estimates, suggesting expensive valuations made gold vulnerable to negative factors. However, driven by structural factors like international monetary order restructuring and global capital diversification, coupled with cyclical factors like expected continued Fed rate cuts in the second half, the gold bull market may not be over. Overweighting gold is still recommended for 2026. Standard Weight: 1) Commodities: Commodities benefit from global capital diversification. CICC is relatively positive on non-ferrous metals. Demand benefits from U.S. re-industrialization and industrialization in emerging markets. Copper, as a key AI infrastructure resource, is highlighted, while some rare metals are strategic resources for national competition. Supply benefits from rising resource nationalism due to geopolitical risks. Additionally, frequent geopolitical events enhance commodities' hedging value. However, performance may diverge, with prospects for black metals like iron ore and rebar appearing relatively weaker. 2) U.S. Equities: CICC expects U.S. stocks to maintain steady performance in 2026. The U.S. market's equity risk premium has fallen to zero, indicating investors see no need for extra risk compensation,无疑 suggesting high valuations. But as Keynes noted, markets can remain irrational longer than investors can remain solvent. The AI bubble has not reached its bursting point, making shorting U.S. stocks difficult. CICC judges U.S. stocks will likely rise further but with limited upside, and downside risks should not be ignored. 3) U.S. Treasuries: For short-term trades (e.g., one-year horizon), considering an increase in allocation to U.S. Treasuries is possible, as CICC anticipates trading opportunities from a steepening yield curve. From a long-term perspective, influenced by U.S. structural changes including loose fiscal discipline and institutional decay, coupled with spillover effects from significantly rising JGB yields, uncertainty surrounding U.S. Treasury rates remains high. Underweight: Chinese Government Bonds, due to expensive valuations and relatively low attractiveness. Long-term, China is likely to maintain a low-inflation environment, and the drag from the property sector on the economy is gradually easing, though a bottoming recovery takes time, limiting upside risks to bond yields. However, Chinese bond valuations are expensive, with rates already at low levels, also constraining downside potential. Compared to assets like stocks and commodities, the returns offered by Chinese bonds are less attractive. From a cross-asset value perspective, CICC recommends an underweight position.

Risk Warning: If the baseline assumption of international monetary order restructuring unfolds slower than expected, the above judgments could be significantly impacted. Specific risk scenarios include tighter-than-expected U.S. dollar liquidity, weaker-than-expected domestic economic fundamentals, a global AI bubble burst, or slower-than-expected Chinese AI development, which could undermine the monetary restructuring narrative.