Core Viewpoint

Since 2024, the 'exception theory' of USA Assets, the strengthening of the theme of the times, and the frequent rotation of global capital are the three core factors driving the prices of major asset classes. In an uncertain environment, certainty and growth have become scarce assets. In terms of asset performance, the main theme of the market in 2024 continues to be 'seeking certainty.' Macroeconomic factors such as the Federal Reserve's interest rate cuts, the suspense of the U.S. election, and the policy game of China gradually materializing require a higher level of precision and flexibility in investment operations. At the level of major assets, the leading assets in 2024 include Bitcoin, Gold, US Stocks, and Chinese Long-term Bonds, while lagging assets include domestic Commodities, Euro, and Crude Oil Product. From the perspective of sectors and individual stocks, the leading assets embody long-term trend changes in AI Technology Industry Chain, China's emotional consumer chain, and safe-haven assets in an uncertain environment.

Main text

Year-End Review of Major Assets

As 2024 comes to a close, we review the performance of various assets for the year-end. In an environment of rapid global capital rotation and international geopolitical turmoil, certainty and growth have become scarce assets, manifested by strong Gold, and the continuously rising US Stock AI, which have broken through traditional valuation frameworks. In terms of institutional behavior, the market pricing power has also changed hands several times, highlighting differences in investors' flexibility and allocation capabilities, with passive and flexible capital favored. Looking back at the past year, we find that the asset performance embodies profound thematic lines of the era, as the financial markets witness miracles, while also showcasing interesting phenomena.

Firstly, from a macro perspective, the global economy is undergoing a profound transformation, characterized by evident misalignment.

The USA economy shows resilience, but after the election, policy uncertainty increases, with focus on the rebalancing of economic growth and inflation.

China's economy exhibits low inflation characteristics, and the continuous implementation of stable growth policies has reduced tail risks.

Japan shows signs of re-inflation, with the Bank of Japan going against the global trend of interest rate cuts, while political turmoil increases.

Europe faces a competitiveness crisis, with constraints on economic recovery elasticity.

It is worth mentioning that Spain has become the best-performing economy among developed countries, actively promoting structural reforms for long-term economic development. The Economist compiled data on five economic and financial indicators for 37 major developed countries in 2024, including GDP, stock market performance, core inflation rate, unemployment rate, and government deficit. Then, based on the performance of each economy, rankings were established, with Spain ranking first, outperforming the USA in both economic growth and employment growth. In terms of industrial structure, there is a shift from traditional manufacturing to a focus on service sector development, using tourism to drive growth. In foreign affairs, an open policy toward immigration is maintained, along with active efforts in attracting investments. Therefore, the developed tourism industry and growth in immigrant employment have supported local housing prices, and investments and production have also supported internal economic growth.

Regarding asset performance, the main theme for 2024 in the market continues to be 'seeking certainty,' as macro factors like the Federal Reserve's interest rate cuts, the USA elections, and the suspense of China's policy games unfold one by one, requiring more precision and flexibility in investment operations. The core logic behind the global asset rotation in 2024 is:

1. The "exceptionalism" of USA assets: In a high interest rate environment, the USA's fundamentals remain resilient, with US stocks continuously leading the market over the past two years.

2. The strengthening of the era theme: The combination of a global election year and frequent geopolitical disturbances has amplified the impact of the era background on asset prices, with Gold performing remarkably, while the AI theme, after more than a year of rapid development, begins to evolve more deeply, resulting in many bull stocks in related Industry Chains.

3. Frequent global capital rotation: The valuation gaps between different assets have widened, with global capital frequently rotating and switching between high and low valuations, whether between countries (Japan / China) or styles (large / Small Cap stocks in the USA, domestic growth / dividend stocks).

In terms of major asset classes, the leading assets in 2024 include:

1) Bitcoin: Most of the time, it is a risk-on asset, primarily priced on its de-dollarization attributes + relaxed regulations after Trump's rise + strict supply constraints, with higher acceptance of Cryptos in developed countries like the USA.

2) Gold: Mainly a risk-off asset, driven by international turmoil + the USA's interest rate cut cycle + concerns over the sustainability of debt in developed countries impacting the US dollar monetary system + central banks in Emerging Markets buying gold, leading to gold prices hitting new highs.

3) Stocks in the USA: In a high interest rate environment, the fundamentals of the USA remain resilient, and US stocks have also become a leading asset over the past two years, driven by the growth of corporate profits resulting from the AI technology revolution and the soft landing of the interest rate cut wave; during this process, a crowded market phase may experience short-term adjustments.

4) China's long-term bonds: weak price signals + downturn cycle in Real Estate + loose monetary policy + significant pressure from Institutions for allocation, domestic interest rates continue to decline, duration strategy gains substantial capital gains.

Assets that underperformed throughout the year include:

1) Domestic Commodities: The Real Estate market continues to cool, the supply-demand conflict intensifies, the Commodity market reflects more trading realities, and domestic black commodities have shown significant pullbacks.

2) Euro: The recovery pace of the fundamentals in Europe is clearly weaker than that of the USA, and fiscal tightening in Germany poses tail risks; under the interest rate differential logic, the Euro is weak.

3) Crude Oil Product: The demand side lacks strong drivers due to a high interest rate environment, while on the supply side, there are potential production pressures from OPEC and the USA, coupled with Trump's trade policy, making it a weak category.

From both Industry and individual stock perspectives, the leading assets reflect changes in long-term trends:

1) AI Technology Industry Chain: In the second year following the release of ChatGPT, trading has gradually returned to rationality from its initial frenzy, but its adoption speed far exceeds that of other technological revolutions in history. Large technology companies with platform advantages and firms in specific verticals with barriers still hold clear advantages. The AI technology revolution has sparked an "arms race" among companies, with demand for computing power growing exponentially; the Hardware manufacturer NVIDIA, known as the "chip seller," has clearly benefited, achieving a 179% increase year-to-date in 2024. Additionally, the diffusion of AI Hardware into upstream electrical infrastructure and downstream Software provides infrastructure services. Vistra Electrical Utilities has seen an increase of over 270% year-to-date. The USA's Mag7 has recorded a 70% increase year-to-date, leading the US stock market. Being bullish on US technology stocks has become the most sought-after and crowded trading line in the market for 2024. Domestic equivalents include Cambrian (with a recent rise of over 380%) and the recent AI application concept "Doubao".

2) The emotional consumption chain in China: Despite a declining consumer sentiment environment, there is strong growth in market space for segmented areas such as emotional consumption, self-pleasure consumption, and fan economy that have advantages and barriers. Although traditional consumer demand remains sluggish, self-pleasure consumption, represented by the "millet economy," is rapidly developing, with "millet products" based on secondary IP generating high added value and quickly expanding market space. Among them, POP MART, as the leading company in the advantageous industry, reported revenue growth of 120% to 125% year-on-year in the third quarter of 2023, and its performance has exceeded market expectations for several consecutive quarters, with an annual stock price increase of over 300%.

3) Safe-haven assets in an uncertain environment: In the past two years, the main market line has been to seek certainty, with high-dividend assets like Precious Metals and bank stocks becoming dominant assets under declining interest rates and low-risk preferences, aiming for performance certainty. For the whole year, the banking sector's increase exceeds 40%, with excess returns of nearly 20 percentage points compared to the Csi 300 Index, ranking among the top in various industries. On one hand, it may be due to the banking sector's better risk-return characteristics, attracting low-risk preference funds such as insurance capital, and on the other hand, the banking operation is relatively stable, enabling smooth performance through provision adjustments, achieving 10% ROE and positive profit growth, thus becoming a focus for risk-averse fund allocation in the absence of a market main line.

Author of this article: Zhang Jiqiang, He Yingwen of HTSC, Source: HTSC Fixed Income Research, Original title: "[HTSC Asset Allocation] Weekly Review: Year-End Review of Major Assets"

Zhang Jiqiang S0570518110002 Researcher

He Yingwen S0570522090002 Researcher