CICC: The reconstruction of the international monetary order in 2026 will remain as the main theme of global assets. Overweight Chinese stocks and gold, neutral on commodities, US stocks, and US bonds.

CICC released a research report stating that the restructuring of the international monetary order in 2026 remains the main theme for global assets. 2025 was a year of accelerated restructuring of the international monetary order, and in 2026, CICC believes that this trend will continue. These trends support the continuation of the bull market for Chinese stocks and gold, and are beneficial for Chinese stocks to outperform US stocks. Asset allocation recommendations: overweight Chinese stocks and gold, allocate commodities, US stocks, and US bonds, and underweight Chinese government bonds. CICC's main points are as follows: I. Review and Implications of Global and Chinese Assets in 2025 Gold and Chinese stocks led the global market, non-dollar assets outperformed dollar assets, and the dollar depreciated. Looking back at the performance of major asset classes in 2025 in terms of US dollars, there were several prominent features: 1) Gold performed the best, with a 67% increase in 2025, marking the largest annual increase since 1980. Among precious metals, copper, with strong financial attributes, also had a significant increase. 2) The dollar depreciated, non-dollar assets outperformed, and the dollar became one of the worst-performing assets last year, with the US dollar index dropping nearly 10%. The S&P 500 representing US stocks rose by 16%, emerging market stocks rose by 31%, outperforming US stocks for the first time since 2017. 3) Chinese stocks ranked high in the global stock market in terms of returns. A-shares benefiting from the AI industry trend saw a nearly 50% increase in the ChiNext Index, the CSI 300 Index rose by 18% throughout the year, and the Hang Seng Index rose by 28%, all achieving the largest annual gains in nearly five years and outperforming the US stock market. In other asset categories, crude oil fell by 18%, becoming the worst-performing asset, while US bonds increased significantly, creating a dual bull market for stocks and bonds globally. Overall, the performance of assets throughout the year can be summarized into two core clues: first, a weakened dollar historically leads to good performance for gold and non-dollar assets. Second, the AI technology revolution, which not only drives the strength of the Chinese and US stock markets in the technology sector but also boosts the prices of related resources such as copper. When these clues are combined, whether it is the weakening dollar, the reversal of China's innovation narrative, or the demand for gold, they are essentially related to the restructuring of the international monetary order. Under the new order, there is a revaluation of Chinese assets, and growth and small-cap stocks have advantages. Against the backdrop of the restructuring of the monetary order, WIND Full A is estimated to rise by about 28% in 2025, with earnings growth contributing around 5 percentage points, while rising risk-free interest rates bring negative contributions. Therefore, most of the stock market's rise comes from the decline in the risk premium. In the report released by CICC in March 2025, "Technology Narrative, Geopolitical Reassessment, and Global Capital Reallocation," it was proposed that the changes in the technology narrative in China and the global geopolitical narrative would drive the reassessment of Chinese assets, especially technology assets. Structurally, driven by the catalysis of the AI industry revolution and the reversal of the narrative of Chinese innovation, growth styles have significantly outperformed, with noticeable improvements in profit expectations for nonferrous metals, communications, and electronics leading the way. Furthermore, with the improvement in market risk appetite, individual investors entering the market become an important incremental source of funds, and small-cap styles are relatively favored in this backdrop. Under the new order, the revaluation of Chinese assets has four noteworthy new paradigms. In addition to being driven by the new monetary order, the Chinese market itself also benefits from changes in new forces and new ecologies. Specifically, the following new paradigms are: 1) The essence of this round of growth is a bull market in technology assets. At the beginning of 2025, the dynamic price-to-earnings ratio of the leading technology stocks in the Hong Kong market was only 12 times, with about a 60% discount compared to the US stocks. This is probably due to the market's confidence in "only the US can break through AI" and the restrictions on technology in the US. Now, the dominant narrative of AI in the US has been broken, and the innovative capabilities of Chinese companies have been recognized again. By the end of 2025, the dynamic price-to-earnings ratio of the seven US tech giants was 29 times, and the market price-to-earnings ratio of the leading technology stocks in Hong Kong had recovered to 18 times, significantly narrowing the gap. The technology sector became the main contributor to the market's rise. 2) Accelerated entry of medium and long-term funds into A-shares. In 2025, regulatory authorities are committed to promoting the entry of medium and long-term funds into the market, with a plan jointly released by six departments, stating that from 2025 onwards, 30% of new premiums will be used to invest in A-shares. The entry of insurance funds into the market has taken the first step, with the size of stocks and securities investment funds held by insurance companies reaching 5.7 trillion yuan by the end of 2025, an increase of 1.6 trillion yuan compared to the end of 2024, and the equity position ratio exceeded the central range since 2017. 3) The continued deepening of the "asset shortage" situation, highlighting the attractiveness of the stock market. Currently, housing prices are at a low level, with the interest rate on Yu'e Bao less than 1%, the interest rate on a three-year fixed-term deposit at approximately 1%, and the yield on government bonds below 2%. In comparison, the dividend yield of the CSI 300 Index is 2.7%, attracting residential funds into the stock market. It is estimated by CICC Bank Group that the scale of resident fixed-term deposits maturing in 2026 is approximately 75 trillion yuan. This part of the funds faces pressure for reallocation, and whether they will further flow into the equity market is worth paying attention to. 4) The flow of funds into Hong Kong stocks and the gradual convergence of price differences between the two places. With the easing of external risks and the increase in the influence of domestic funds, the net inflow of southbound funds through the Hong Kong Stock Connect reached 1.4 trillion Hong Kong dollars in 2025, and the share of southbound funds in the Hong Kong Stock Connect further increased to 15%, significantly increasing the impact of southbound funds on the Hong Kong stock market. As a result, mainland funds have more flexibility in choosing between fundamentals and valuations in the two markets, and the AH premium has narrowed from a peak of over 60% to less than 20%. In summary, in the context of the restructuring of the international monetary order in 2025, the high prosperity of the new economy industry in China and the increase in its proportion have become the new driving forces of the capital market. The financial environment and cross-market investments have become the new ecology. These factors are indispensable considerations for the prospects of the Chinese market. II. Three Major Consensus for 2026 from the Perspective of Monetary Order Restructuring After a year of evolution, CICC believes that three major consensuses have been formed for 2026: firstly, the bull markets for A-shares and Hong Kong stocks will continue; secondly, the bull market for gold will continue, and there will also be opportunities in commodities; and thirdly, US stocks may lag behind Chinese assets. Understanding the underlying logic behind these consensuses is crucial as it will impact the pace and sustainability of the market's future trends, especially in resolving key divergences. The popular explanations for the current market consensus have many contradictions. Firstly, regarding the reasons for the bull market in Chinese stocks, the popular view is that it is due to the movement of household deposits, or due to the low interest rate environment and regulatory support for the capital market. However, the high growth in household deposits has been observed since 2022, and the low-interest-rate environment and regulatory support are not new factors, making it difficult to explain them as the triggering factors for the increase in 2025. It is crucial to note that the movement of household deposits is a result of market fluctuations, and when the market fluctuates, households will adopt a wait-and-see approach. Secondly, concerning the bull market in gold, the popular logic attributes it to the de-dollarization brought about by frequent extreme events and increased geopolitical risks. However, as risk assets like US stocks rose together with gold amidst geopolitical risks, this explanation contradicts the idea that gold is driven by geopolitical concerns. Regarding the theory that US stocks may lag behind Chinese stocks, the common belief is that the poor economic performance of the US, high valuation of US stocks, and the AI bubble issue will lead to underperformance. However, the nominal growth of the US economy remains at high levels, and the valuation of US stocks has been significantly higher than that of A-shares since 2022, making it challenging to support the argument that US stocks will underperform. CICC believes that there is a common thread underlying the three major consensuses, which was proposed in the report "Asset Transformation under the Restructuring of the Monetary Order" released by CICC in June 2025. The report argues that the acceleration of the restructuring of the international monetary order, the shift in the landscape, and the flow of capital are forces far greater than the changes in fundamentals of a single market, city, or country. According to CICC, this is the common thread tying the three major consensuses together. III. How to Interpret Three Major Market Divergences in 2026? CICC believes that A-shares may currently be better positioned for a slow bull market than at any other time in history. There is a common divergence in the market regarding a "slow bull market" versus a "fast bull market." The prevalent view is that there is nothing new under the sun, and A-shares will struggle to break free from past bull and bear cycles, making it crucial to time the market peak in 2026. CICC analyzed in its report released at the beginning of the year, "How Does the "Bottomless Bull" Form?" that historically, A-shares have tended to have short bull markets and long bear markets, which tend to overshoot future expectations and lead to rapid declines. The monthly average increase in the Shanghai and Shenzhen 300 Index during bull markets is 3.2%, much higher than the 1.9% level seen in the S&P 500. Additionally, the frequency of large monthly increases in A-shares also ranks high among major markets globally. However, CICC believes that A-shares may now be better positioned for a slow bull market than at any other time in history. Apart from being supported by the "new order" of the restructuring of the international monetary system, the A-share market has also seen positive changes in terms of new dynamics and new ecologies. Specifically: 1) On the fundamental level, economic transformations and new productivity drivers have formed "new dynamics." Historically, the Chinese economic cycle has been shorter than the global average, with an average length of about 4 years for a complete economic cycle in China since 2000, compared to around 8 years for the US and 6 years for OECD countries. This faster economic cycle operation in China is closely related to the high-leverage development model in the past and the "fiscal accelerator" effect of local government land financial policies. However, since the financial cycle started declining in 2017, lasting for more than 8 years, close to the international average of 8-10 years, and the proportion of the real estate industry in the economy has significantly decreased. CICC believes that with the continuous strengthening of the fundamental resilience, the cyclical fluctuations are expected to become more stable. Moreover, new productivity is gradually becoming the new DRIVE of the economy, and the industry structure within the stock market is already reflecting these changes. The new economy sectors in the first three quarters of 2025 accounted for nearly 40% of non-financial enterprise profits and nearly 60% of the freely tradable market value, helping to reduce cyclical fluctuations and provide new growth momentum. 2) Regarding the institutional aspect, A-shares have formed a more balanced "new ecology" for investment and financing. In the past, A-shares tended to be more focused on "financing," but in 2024, the "Nine New National Rules" promoted enterprises to increase dividend payouts. Additionally, companies are in their best-ever state of free cash flow, with a significant improvement in dividend payouts. By 2024, the free float market capitalization of A-share companies for dividends exceeded that of IPOs and refinancing, indicating ongoing optimization of the market ecology. 3) In terms of fund allocation, a variety of funds are jointly forming a positive cycle in the market. A-shares used to have higher volatility due to the lack of long-term funds and a relatively high proportion of individual investors. However, 2025 marked the first year of accelerating entry of medium and long-term funds into the market. Driven by policies, the proportion of equity holdings by insurance companies exceeded the central range by the end of 2025; as a stabilizing mechanism, the CIC has matured as a "national team," guarding against both "big falls" and "big spikes"; the implementation of high-quality regulations for the development of public funds has pushed public funds to focus on medium and long-term assessments; under the "asset shortage," residents have decreased their real-estate allocations and shown a stronger inclination towards investments in potential high-return assets represented by equities. This multi-faceted effort to enter the market is expected to be better than in the past, conducive to the formation of a slow bull market. After two consecutive years of valuation improvement, there is still room for further improvement. Another common debate in the market is whether the current bull market is being driven more by improved profits. The rises in the market in 2024 and 2025 were mainly driven by valuation recovery, and for the bull market to continue in 2026, it will need to rely more on significant profit growth. CICC believes that the implications of the restructuring of the monetary order for the capital market are different from the usual drive by improved profits, focusing instead on investors' renewed understanding of China's competitiveness and the search for new investment opportunities. In this context, the reassessment of Chinese assets and investor confidence is ongoing. Currently, the price-to-equity risk premium of A-shares has only been restored to the average level, and the dividend yield of the main indices still has a significant advantage over bond yield, with China's representative technology assets still trading at a significant discount compared to US stocks. CICC believes that even in the absence of high profit growth for companies, under the trend of the restructuring of the international monetary order, the valuations of Chinese stocks are expected to continue to improve in 2026. The likelihood of a recovery in fundamentals is on the rise, and in an optimistic scenario, a "Davis double-click" could be achieved. Currently, the recovery of domestic prices and corporate profits still faces challenges, with the current downward financial cycle and weak income expectations acting together to limit total demand. However, positive factors are gradually accumulating. Firstly, the downward trend of the financial cycle has almost reached the international average experience, and it is expected that the pressure of the real estate cycle adjustment will ease in the future. According to the views of the CICC Real Estate team, cities like Shanghai and Beijing with low social inventory may see a growth turnaround sooner. Secondly, most industries have significantly decreased capital expenditure since 2022 and have gradually entered the period of capacity reduction. Looking at industries related to IPOs and fixed asset investments, there has been a significant increase in the number of industries with negative growth in projects under construction since 2023. As industrial value-added and exports continue to grow at high rates, CICC believes that more industries will see a converging supply-demand gap in the future, which will help stabilize prices and improve profits. In an optimistic scenario, Chinese stocks are expected to achieve a "Davis double-click" in terms of earnings and valuations. IV. Asset Allocation Recommendations for 2026 The restructuring of the international monetary order in 2026 remains the main theme for global assets. With the acceleration of the restructuring in 2025, CICC believes that this trend will continue in 2026, supporting Chinese stocks and gold to maintain their bull markets and potentially outperform US stocks. Considering the current market divergences, CICC believes that this trend can also provide crucial evidence: firstly, regarding the pace of the bull market in Chinese stocks, the "new order" of the monetary restructuring process will not happen overnight; it is a process of global capital's changing perception, and this logic is still strengthening, favoring a slow bull market in the market and the continuous revaluation of Chinese assets. Secondly, concerning the impact of the "Powell Impact" on the Fed's easing policy, considering political constraints, economic constraints, and market constraints, the current Fed is unlikely to be prepared for aggressive balance sheet tightening. Powell may push for an unexpected rate cut, leaving the Fed's credibility and the security of US dollar assets still in question. Thirdly, in terms of the risk of an AI bubble in US stocks, CICC believes that as AI technology significantly enhances productivity and does not entail systematic leverage or debt risk, in a global capital reallocation context, high-quality assets usually have a higher tolerance for valuation, hence not yielding bad performances overall. Asset allocation recommendations: overweight Chinese stocks and gold, allocate commodities, US stocks, and US bonds, and underweight Chinese government bonds. Based on the above analysis, CICC's ranking for global asset allocation in 2026 is as follows: Overweight: 1) Chinese stocks: The restructuring of the international monetary order is driving global capital reallocation, and CICC continues to be optimistic about the revaluation of Chinese stocks. The current improvement in fundamentals and increasing profitability factors may lead to a "Davis double-click" scenario, where profits and valuations may both see improvements. CICC sees potential in four main sectors: economic growth, as AI gradually enters industrial applications and delivers results, focusing on infrastructure such as computing power, semiconductors, and cloud computing, as well as applications like Siasun Robot & Automation, smart driving, etc.; external breakthroughs, as outbound opportunities still present solid growth prospects, specifically in successful sectors like engineering machinery, commercial vehicles, power equipment, games, and opportunities in copper, oil and gas resources due to price increases and improved results; cyclical reversals with supply-demand gaps converging in areas like chemicals, refinement, oilfield services, and new energy; high dividends, which, despite challenging in a predominantly growth-driven environment, still retain good core value in a low-interest environment, liking the insurance sector in the financial industry and companies with strong free cash flow and sustainability in non-financial sectors. 2) Gold: CICC's model calculations show that the gold price has remained more than $1500 against the model residue, indicating overvaluation and the fragility of gold prices to negative factors. However, with the structural factors of the restructuring of the international monetary order, the shift in global fund flows towards diversification, and the expected continuous rate cuts by the Fed in the second half of the year, the bull market for gold may not have ended, and it is advisable to continue overweighting gold in 2026. Allocate: 1