CICC | Asset Reallocation: Redefining Safe Assets

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CICC | Asset Migration: Redefining Safe Assets

Source: CICC Insights

Abstract

Since the U.S. and Israel jointly launched military strikes on Iran at the end of February 2026, global assets have experienced significant turbulence, with risk assets almost universally declining. Oil prices surged due to concerns over supply disruptions in the Strait of Hormuz, with Brent crude oil’s cumulative increase approaching 50% compared to pre-conflict levels. The energy sector and related commodities have led the market, while traditionally safe assets like gold and U.S. Treasuries have also seen declines.

We believe that as the old international order loosens and the probability of geopolitical risks increases, the logic of safe assets has changed. Specifically, assets that can enhance a nation’s ability to resist geopolitical risks are now considered safe assets. In market terms, we have observed a rebalancing of funds across countries, styles, and asset classes over the past year. Emerging markets and European stock markets have reached new highs, while U.S. stocks have performed relatively weakly. Within U.S. stocks, the tech-heavy Nasdaq has gradually weakened, while the Dow Jones, which is more focused on cyclical and value styles, has performed relatively well. Sector-wise, materials, energy, industrials, and defense aerospace have generally led, while information technology has begun to weaken. Cross-asset-wise, there has been an increase in allocation to commodities, with gold, oil, and agricultural products performing well. The traditional dollar safe-haven logic has weakened; after the U.S.-Israel conflict, the yield on 10-year U.S. Treasuries rose significantly, but the dollar’s upward movement has been relatively tepid.

In March 2025, we proposed the framework of Trump’s “Great Reset” from a geopolitical economic perspective to understand and predict the clues of global asset rotation under Trump 2.0 (see “Trump’s ‘Great Reset’: Debt Resolution, Moving from Virtual to Real, and Dollar Depreciation”). The core of this framework is moving from virtual to real, with the goal of resetting the relationship between financial capital and industrial assets. The means are fiscal dominance and financial repression, and the result is a medium- to long-term global capital rebalance. In terms of assets, the dollar has entered a trend of depreciation, especially against a basket of physical assets. After implementing explicit yield curve control (YCC), long-term U.S. Treasury yields are expected to fluctuate downwards. In the stock market globally, there is a major theme: security and resilience under changing geopolitical landscapes, focusing on two main lines: productivity improvement and resource self-sufficiency (see “Fiscal Dominance, Restarting Expansion”). Non-U.S. assets, especially emerging markets, are expected to outperform U.S. stocks. Within U.S. stocks, one should focus on “Main Street” sectors, such as resources, energy, and heavy industry; tech is more driven by earnings and is beginning to diverge. Recently, U.S. military strikes on Iran have reinforced global demand for hard assets that enhance national security and resilience: resource energy, heavy industry (equipment manufacturing, defense aerospace, etc.), and technology that helps mitigate geopolitical risks and enhance industrial strength.

Recently, in our report “It’s Not a Choice, It’s Inevitable — The U.S. Policy from the Perspective of Political Economy,” we discussed that Trump’s policies are “not a choice, but inevitable,” and this inevitability will continue to drive global asset migration in the medium to long term. We expect that as global geopolitical risks become more frequent, the safety attributes of Chinese assets will increasingly attract capital, potentially boosting a sustained bull market in A-shares.

Risk Enhancement: The escalation of geopolitical conflicts leading to prolonged surges in oil prices, thereby forcing the Fed to tighten monetary conditions.

Table of Contents

• A Whale Falls, All Things Revive

• Trump’s “Great Reset,” Historical Inevitability

• Fiscal Dominance, Moving from Virtual to Real

• Asset Migration

Text

Main Body

A Whale Falls, All Things Revive

Since 2025, the dollar’s “whale falls, all things revive,” the global stock market has shifted from the “U.S. stock exception theory” to a flourishing diversity, with precious metals like gold, silver, and copper initiating a super cycle. Over the past year, emerging markets and non-U.S. stock markets have outperformed the S&P 500 by 16.3 and 6.4 points respectively[1], and considering the significant depreciation of the dollar, non-U.S. stock markets have outperformed even more (Chart 1, Chart 2). At the same time, there has been a trend of rebalancing funds between the U.S. and non-U.S. markets (Chart 3, Chart 4).

Chart 1: EM Begins to Outperform the S&P 500

Source: Bloomberg, CICC Research Department

Chart 2: Non-U.S. Developed Markets Begin to Outperform the S&P 500

Source: Bloomberg, CICC Research Department

Chart 3: Global Funds Increasing Allocation to Non-U.S. Stocks, Reducing Holdings in U.S. Stocks

Source: EPFR, CICC Research Department

Chart 4: Global Active Funds Reflect the Same Trend

Source: EPFR, CICC Research Department

Entering 2026, the rebalancing is accelerating. Even under the stimulus of geopolitical risks, the dollar index remains weak, while emerging markets and non-U.S. stock markets perform relatively better, whereas the S&P 500 stagnates and the Nasdaq fluctuates downward (Chart 5). The rotation of sectors in U.S. stocks has accelerated, with materials, energy, and heavy industry showing bright performance, while information technology has weakened (Chart 6). Precious metals like gold, silver, and copper have seen corrections after significant rises (Chart 7).

Chart 5: Emerging Markets and Non-U.S. Stocks Perform Favorably This Year

Note: Data as of March 21, 2026. Source: Bloomberg, CICC Research Department

Chart 6: S&P Energy, Materials, and Industrials Lead This Year

Note: Data as of March 21, 2026. Source: Bloomberg, CICC Research Department

Chart 7: Gold, Silver, and Copper Entering a Super Cycle

Source: Bloomberg, CICC Research Department

Trump’s “Great Reset,” Historical Inevitability

Since 1980, when U.S. President Reagan initiated the deindustrialization process in the United States, the wealth gap has gradually widened (Chart 8). During the Clinton era, the U.S. accelerated financialization and globalization, further exacerbating the wealth gap. After nearly forty years of shifting from real to virtual, the relationship between industrial capital and financial capital in the U.S. has long been one of mutual decline, with the divide between Main Street and Wall Street continuously expanding, and the U.S. wealth disparity index reaching its highest level since World War II (Chart 9).

Chart 8: Income Distribution in the U.S. Has Become Increasingly Unbalanced Since the 1980s Due to Deindustrialization

Source: Our World in Data, FRED, CICC Research Department

Chart 9: Over the Past Forty Years, the Wealth Gap in the U.S. Has Widened to the Highest Level Since World War II Alongside Deepening Globalization

Source: Our World in Data, CICC Research Department

The historical pendulum swings with public opinion. Over the past 140 years, the U.S. and Europe have experienced three major cycles of wealth disparity, accompanied by three significant swings in government and fiscal ideologies. Around 1870, the “first wave of globalization” began, with the global export volume as a percentage of GDP trending upwards, and major countries in Europe and America adopting small government and strict balanced fiscal policies, leading to a continuous rise in wealth disparity until reaching historical highs in the 1930s. During World War II and the thirty-five years thereafter, the U.S. and Europe implemented Keynesianism, establishing large government, large fiscal policies, and welfare states, significantly weakening monetary policy independence and causing a stagnation or even reversal in globalization. During this time, the wealth disparity in the U.S. and Europe significantly improved; in the 1970s, strong labor unions led to the lowest wealth disparity index, but labor productivity growth also dropped to historical lows, resulting in long periods of intermittent stagflation. After 1980, the people of the U.S. and Europe called for growth and efficiency, prompting their governments to adopt small government and quasi-balanced fiscal policies while promoting global economic integration and financial trade liberalization, gradually strengthening monetary policy independence; however, the wealth disparity in the U.S. and Europe once again widened to the highest level since World War II.

Historically, such extreme wealth disparity often exacerbates internal or external friction. For instance, the trade frictions initiated by Trump can be seen as an external manifestation of domestic class conflicts in the U.S. Since the pandemic, the U.S. has continued to implement pro-cyclical large fiscal policies, which we believe are means to address the intensifying internal and external frictions. To respond to increasing internal friction, there has been sustained large fiscal spending to adjust distribution and address rising demands for fairness from voters; to tackle external pressures, the government has attempted to solidify national security through fiscal dominance and industrial policy. Historically, the U.S. fiscal deficit rate is highly positively correlated with the unemployment rate, reflecting the counter-cyclical nature of fiscal policy, meaning that during economic downturns and high unemployment, the government stimulates the economy through fiscal measures. However, during the periods of 1916-1918, the 1940s, and 1966-68, the U.S. exhibited significant pro-cyclical large fiscal measures: during those times, the U.S. unemployment rate was consistently low, yet the deficit rate remained high (Chart 10). Since 2018, the U.S. has once again entered a pro-cyclical fiscal period. According to the historical relationship between deficit and unemployment rates, and considering the low unemployment rates in recent years, the “reasonable” fiscal deficit rate for the U.S. should be around 3%-4%, rather than the persistent 6%-7% seen in recent years. This indicates that the fiscal policies of recent years are not solely based on economic factors but may also reflect considerations of security and fairness; and to direct resources towards safety and fairness, moving from virtual to real is an essential path.

Chart 10: The U.S. Has Entered a Pro-Cyclical Fiscal Period Again

Source: CBO, CICC Research Department

Fiscal Dominance, Moving from Virtual to Real

Historically, when a country’s government deficit rate remains high, and debt leverage continues to rise, it often leads to fiscal dominance, where monetary policy not only addresses economic fundamentals like inflation and employment through counter-cyclical adjustments but also must increasingly cooperate with fiscal policy to alleviate government debt pressures. In the form of monetary cooperation with fiscal policy, this is often reflected in both price and quantity. In terms of price, central banks tend to maintain relatively low interest rates compared to economic fundamentals, often below neutral rates; in terms of quantity, this is commonly accompanied by normalized purchases of government bonds to expand the balance sheet, essentially leading to debt monetization. Furthermore, the government may also adopt broader financial repression: using administrative means to artificially lower the entire interest rate curve, providing low financing costs to support fiscal policy and manufacturing, regardless of whether this is done through or around the central bank. Therefore, under fiscal dominance, liquidity is often relatively loose, and there is pressure on currency depreciation.

In our report last March, “Trump’s ‘Great Reset’: Debt Resolution, Moving from Virtual to Real, and Dollar Depreciation,” we clearly pointed out that Trump 2.0 will likely restart fiscal dominance and financial repression to relieve debt pressures and attempt to boost manufacturing. Over the past year, the Trump administration has successively nationalized chip and mining companies[2], implemented price controls[3], introduced industrial policies[4], and engaged in interest rate controls[5], all of which reflect elements of state capitalism. Historically, these often occur under fiscal dominance, as seen in the 1930s and 1940s and the 1960s and 1970s. Looking ahead, regardless of how tariff policies evolve, U.S. fiscal pressures are increasing (Chart 11, Chart 12), making monetary cooperation and financial repression inevitable. Even Kevin Warsh, the candidate for the Fed chair who advocates for reducing the balance sheet, has stated that “we need to strengthen the coordination between monetary and fiscal policies to jointly address the U.S. government debt issue”[6] (see “Warsh’s Challenge to the Balance Sheet Reduction”).

Chart 11: U.S. Fiscal Debt Leverage Rate Continues to Rise

Source: CBO, CICC Research Department

Chart 12: The Market Expects U.S. Fiscal Deficit Rate to Remain High

Source: CBO, CRFB, CICC Research Department

Fiscal dominance and financial repression help to reduce debt and also boost manufacturing, i.e., moving from virtual to real. Over the past three years, we have suggested in a series of reports that investors consider themes related to the reindustrialization of the U.S. and Europe and certain emerging markets (see “From the New Macroeconomic Paradigm to ‘China’s Special Valuation’,” “On the Peak of U.S. Treasury Yields: A Natural Rate Perspective”). Specifically for the U.S., as mentioned above, the reindustrialization may concern both “national security” and “fairness.” In fact, revitalizing U.S. manufacturing has been a bipartisan consensus policy since the Obama administration. Trump 1.0 reversed the long-term deindustrialization process in the U.S., and signs of manufacturing returning have emerged, bringing a trend of increasing employment numbers (Chart 13). The capital expenditures brought about by FDI inflows into the U.S. have become more concentrated in the manufacturing sector (Chart 14). Post-pandemic, under the restart of large fiscal spending and industrial policy, there has been some progress in U.S. reindustrialization. The asset pricing over the past few years has also reflected to some extent the reality or expectations of reindustrialization in the U.S., Europe, and Japan (Chart 15).

Chart 13: The Increase in Employment Related to Manufacturing Reshoring

Source: Reshoring Initiative, CICC Research Department

Chart 14: Significant Increases in Capital Expenditures Due to FDI Inflows, Significantly Concentrated in Manufacturing

Source: fDi Markets, CICC Research Department

Chart 15: The Reindustrialization Index for the U.S., Europe, and Japan Has Accelerated Over the Past Year

Note: The U.S. and European reindustrialization indices are based on leading companies in manufacturing, defense, materials, energy, etc. in the U.S. stock and European stock markets, while Japan uses the OPPJ index.

Source: Bloomberg, CICC Research Department

Asset Migration

As the old world order begins to loosen and the new order has yet to be established, the probability of global geopolitical conflicts will start to increase, and the logic of asset allocation is also beginning to change. In summary, the meaning of global safe assets is evolving. We believe that assets that can help countries resist geopolitical risks are the new safe assets in the changing environment, involving shifts in asset categories (from financial to physical), country allocation (from the U.S. to non-U.S.), and style (from growth to value). In “Trump’s ‘Great Reset’: Debt Resolution, Moving from Virtual to Real, and Dollar Depreciation,” we made strategic judgments on major asset classes globally: the dollar is entering a trend of depreciation, especially against a basket of physical assets (precious metals, energy metals, ports, power grids, etc.) (Chart 16, Chart 17), and currently, allocation to commodities is on the rise (Chart 18). Under the increasing global geopolitical conflicts, deglobalization, and reindustrialization, the trend of an upward super cycle may persist for a long period (see “From the New Macroeconomic Paradigm to ‘China’s Special Valuation’”). In the bond market, long-term U.S. Treasury yields are expected to oscillate at high levels until some form of interest rate control is implemented to substantially lower them. In the stock market, non-U.S. assets, particularly emerging markets, are expected to trend toward outperforming U.S. stocks; within U.S. stocks, value-oriented cyclicals are likely to trend toward outperforming growth.

Chart 16: The Dollar Begins to Weaken, A New Commodity Bottom May Emerge

Source: Bloomberg, CICC Research Department

Chart 17: During Periods of Dollar Weakness, Gold, Silver, and Copper Perform Strongly Relative to the S&P

Source: Bloomberg, CICC Research Department

Chart 18: The Allocation Ratio for Commodities Still Has Room to Rise

Source: Bloomberg, CICC Research Department

Combining the latest changes from the past year, we further refine the sectors in the stock market. In the context of U.S. reindustrialization and “rearmament,” along with fiscal dominance and financial repression, the nominal economic cycle in the U.S. is expected to restart upward (see “2026 Global Market Outlook: Accelerated Bubbles”), meaning that manufacturing PMI and PPI year-on-year growth is likely to begin an upward cycle from the bottom (Chart 19), benefiting stock market profits (Chart 20). Trend-wise, U.S. nominal economic growth may remain high for a long time, increasingly driven by investment rather than consumption, indicating a long-term “K-shaped” divergence (Chart 21): one side sees investment flourishing, with nominal GDP growth remaining high, while the other sees employment and consumption lackluster or even weak (Chart 22, Chart 23). This reflects a longer-term resource shift under U.S. policy intervention: a trend from household consumption toward production investment.

Chart 19: U.S. Manufacturing PMI is Expected to Restart an Upward Cycle

Source: Haver, CICC Research Department

Chart 20: The S&P Profit Cycle Continues to Rise

Note: The leading index is based on forward-looking economic data to predict S&P profits. Source: Bloomberg, CICC Research Department

Chart 21: The U.S. Shows Clear K-shaped Economic Characteristics

Source: Haver, CICC Research Department

Chart 22: U.S. Equipment Investment and Nominal GDP Cycle Moving Upward

Source: Haver, CICC Research Department

Chart 23: But Corporate Hiring and Private Consumption Cycles are Weak

Source: FRED, CICC Research Department

Changes in economic structure will trigger shifts in funding within stock market sectors. U.S. cyclical sectors such as resources, energy, industrials, and defense aerospace are expected to outperform in the long term due to policy-driven demand. U.S. large tech companies will gradually begin to leverage debt for expansion, which may suppress their valuations to some extent. As a result, the performance of tech stocks will be driven more by earnings, leading to internal divergence. In fact, looking at history, during periods of rising commodity trends, U.S. stocks, especially growth stocks, have seen valuations suppressed (Chart 24). Similarly, during periods of high nominal growth in the U.S., value cyclicals tend to outperform growth (Chart 25).

Chart 24: The Rising Commodity Super Cycle Further Suppresses Growth Stock Valuations

Note: The super cycle component refers to the 20-70 year cyclical component derived from the actual price data of 42 commodities collected and organized by David Jacks, obtained through CF filtering. For more details, please refer to “From the New Macroeconomic Paradigm to ‘China’s Special Valuation’.” Source: Bloomberg, https://davidjacks.org/data/, CICC Research Department

Chart 25: High Growth and the Rising Commodity Super Cycle Suppress U.S. Stock Valuations

Source: Bloomberg, https://davidjacks.org/data/,

From a cross-national perspective, we continue to be optimistic about non-U.S. stocks outperforming U.S. stocks. Following the financial crisis, with the trend of dollar appreciation, U.S. stocks significantly outperformed non-U.S. stocks, but this trend reversed at the beginning of 2025, and we expect this trend to continue (Chart 26). Historically, during periods of commodity super cycles, global investment and industrial demand have been robust, and emerging markets typically perform better (Chart 27).

Chart 26: The Long-Term Outperformance of U.S. Stocks Over Emerging Markets and Non-U.S. Developed Markets is Reversing

Source: Bloomberg, CICC Research Department

Chart 27: Emerging Markets Outperform Developed Markets During Super Cycle Upturns

Source: Bloomberg, CICC Research Department

With the dual support of large manufacturing and strong technology, the Chinese market shows significant resilience. Since the U.S.-Iran conflict, A-shares have demonstrated strong resilience among major global markets (Chart 28), supported by China’s manufacturing and innovation capabilities. On one hand, China’s economy is undergoing a transition from the traditional real estate-driven model to a technology innovation-driven model, enhancing high-tech manufacturing capabilities (Chart 29). Currently, China’s manufacturing value-added accounts for nearly one-third of the global total (Chart 30). Against the backdrop of rising geopolitical risks, a complete and systematic manufacturing capability is a scarce resource, becoming an important cornerstone of A-share resilience. On the other hand, industrial strength boosts technological capability, with China’s global innovation index ranking entering the top ten for the first time (Chart 31), surpassing countries like Japan, Germany, and France, making it the only emerging market country in the top ten. Particularly, China ranks first in the world for public patents in high-tech fields, represented by AI (Chart 32). The strong supply capability under the backdrop of global reindustrialization is favorable for domestic intermediate goods and capital goods exports (Chart 33), especially with high-tech product exports maintaining a high proportion (Chart 34). In the context of diminishing global peace dividends, large manufacturing and strong technology become core elements of security, making A-shares a scarce safe asset under the dual support of both.

Chart 28: A-shares Show Strong Resilience Since the U.S.-Iran Conflict

Note: Data starting point is from February 27, 2026, to March 24, 2026.

Source: Wind, CICC Research Department

Chart 29: Growth Engine Transitioning, Economy Moving Toward Efficiency

Source: See “Monetary Changes Reshaping Market Landscape,” CICC Research Department

Chart 30: China’s Manufacturing Value-Added Accounts for One-Third of the Global Total

Source: UNIDO, CICC Research Department

Chart 31: China’s Innovation Capability Ranks in the Global Top Ten for the First Time

Source: WIPO, CICC Research Department

Chart 32: China Becomes the World’s Largest Country for AI Patents

Source: WIPO, CICC Research Department

Chart 33: Intermediate and Capital Goods Lead Export Growth

Source: General Administration of Customs, UN Comtrade, CICC Research Department

New technology and geopolitical narratives are driving global capital rebalancing, boosting a long bull market in A-shares. Since 2021, global funds have been overweight in U.S. stocks, while the allocation ratio for the Chinese market has been trending down, and active funds have been underweight compared to passive funds (Chart 35). However, since Q4 2025, the de-dollarization narrative has prompted a global capital rebalancing, and A-share assets, which have been undervalued and underweighted for years, have regained global fund favor, significantly improving the underweight situation. Driven by technological innovation and the expansion of manufacturing overseas, the “new economy,” represented by high-tech exports, has shown better fundamentals and returns compared to the traditional “old economy” (Chart 36). Before 2020, the performance distinction between the new and old economy sectors was not significant, with overall trends being largely consistent. However, post-2020, the “new economy” sector has significantly outperformed the “old economy” sector (Chart 37). The positive factors on both the asset side and the capital side will help promote a long bull market in A-shares.

Chart 34: The Proportion of High-Tech Product Exports Remains High

Note: High-tech products refer to those whose Product Complexity Index is in the top 25% percentile. Source: Harvard Growth Lab, CICC Research Department

Chart 35: Improvement in Active Fund Allocation to A-shares

Source: EPFR, CICC Research Department

Chart 36: High-Tech Enterprises and Overseas Enterprises Overlap Significantly

Note: Index weights are based on the secondary industry classification weights of the Wind specialized and new index and the overseas index, with the nine industries in the red box defined as “new economy,” and the rest as “old economy.”

Source: Wind, CICC Research Department

Chart 37: The “New Economy” Index Outperforms the “Old Economy”

Note: The new and old economy indices are equal-weighted indices based on relevant industries. Source: Wind, CICC Research Department

[1] As of March 25, 2026

[2] https://www.nytimes.com/2025/11/25/us/politics/trump-intel-steel-minerals-china.html

[3] https://www.whitehouse.gov/fact-sheets/2025/12/fact-sheet-president-donald-j-trump-announces-largest-developments-to-date-in-bringing-most-favored-nation-pricing-to-american-patients/

[4] https://www.foreignaffairs.com/united-states/making-industrial-strategy-great-again

[5] https://www.bbc.com/news/articles/crmlkxjm88ko

[6] https://www.bloomberg.com/news/newsletters/2026-02-02/could-warsh-at-the-fed-and-bessent-at-treasury-remodel-the-central-bank-s-role

Source

This article is an excerpt from “Asset Migration: Redefining Safe Assets,” published on March 26, 2026.

Zhang Jundong, Analyst, SAC Certification No: S0080522110001, SFC CE Ref: BRY570

Fan Li, Analyst, SAC Certification No: S0080525110003, SFC CE Ref: BUD164

Yu Wenbo, Analyst, SAC Certification No: S0080523120009

Zhang Wenlang, Analyst, SAC Certification No: S0080520080009, SFC CE Ref: BFE988

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