CITIC Construction Investment: The “East rises and falls west” narrative is once again popular How do you view current and future asset trends in China and the US?

The Zhitong Finance App learned that CITIC Construction Investment Securities released a research report saying that based on the long term, the major inflection point for Chinese assets is gradually getting closer. Judging from the interpretation trends of previous technological revolutions, AI will move from the US to the global, from R&D to full application, and the major inflection point of the US asset and dollar tide is gradually getting closer. If China gets rid of the drag of real estate in the future and undertakes AI applications on a large scale at that time, then China's assets will usher in a spectacular “major turning point”.

Incident: After the holiday season, Chinese and US assets experienced a clear shift in trading. US stocks weakened, US debt strengthened, the US dollar weakened, China's AH shares rebounded strongly, Chinese bonds pulled back markedly, and the “east rises and falls west” narrative became popular again.

Last week began showing signs of relaxation. Chinese stocks began a positive upward cycle. After experiencing Black Monday, US stocks began showing signs of stopping falling.

Capital fluctuations have sparked market discussions, has the macro-narrative of Chinese and US assets fundamentally changed, and has a turning point in global asset pricing arrived?

1. Behind the reversal of the macro-narrative, what are Chinese and US assets being priced?

Before answering the above two questions, let's first clarify one question. How have Chinese and US assets been priced in the past month or so?

The main line of domestic demand in 2024 is insufficient effective demand. Typical indicators are a year-on-year contraction of about 3.7 trillion dollars outside the CITI budget in 2024, and a year-on-year contraction of about 1.55 trillion yuan in residential credit during the same period. The contraction in domestic demand is also putting pressure on corporate profits (on the molecular side) and financial conditions, so the overall performance of Chinese assets in 2024 is weak, and safe-haven assets are strong.

The biggest main line of US assets in 2024 is AI driving the technological revolution upward, so US assets can overcome the major trend of downward global demand, and US stocks have broken through history over and over again. Global capital is also pricing the “America dominates” narrative, and the gravitational gap between US and non-US assets has increased.

This narrative between China and the US continued for about a year in the midst of twists and turns. This is also the mainstream pricing model chosen by the market in 2024. After a wave of asset fluctuations triggered by the US “Sam's rule” in August, the asset narrative between China and the US was strengthened. Since Trump announced his victory in November, the market has focused on Trump's anticipated transactions of “strong dollar - strong US stocks”, pushing the gap between US and non-US assets and the wave of dollars flocking to the US to the extreme.

The consensus expectations for Chinese and US assets formed after August of last year began to loosen under the impact of Deepseek at the beginning of the year.

After the Deepseek shock, China's first-tier and second-tier real estate sales also showed surprising resilience. The market is beginning to reprice China's domestic demand logic: although the market believes that it is still necessary to wait and see a rebound in fundamentals in the future, the market is beginning to lean towards an improvement in the downward slope of pricing fundamentals compared to 2024. Coinciding with the central bank tightening liquidity and changing the base currency investment method (suspending treasury bond purchases), the crowded bond long trading in 2024 finally ushered in a wave of rebound after the Spring Festival, and bond interest rates showed a significant correction.

The US asset narrative also saw a wave of reversals after the holiday season. Deepseek has shaken the foundation of America's “exceptionalism” of the past two years — the US has exclusive monopoly on AI technology. After January 20, Trump's deal went from expectations to reality. Since Trump took office, tariffs and fiscal spending cuts have been continuously promoted, lacking transparent rules, and the market began to worry about the fragility of the US economy. Coupled with weak economic and employment data, the US recession story came to pass. US stocks have been falling for four weeks. Interest rates on US bonds have fallen below 4.3%, and the US dollar index has returned to the level before Trump's transaction.

Looking back at the reverse trend of Chinese and US assets over the past month, it is essentially that the market made a correction to the weak domestic demand in China and the US exceptionalism, which are unanimously expected in 2024: the Chinese economy can be repaired, even if the slope is low; the US seems to be no exception; at least not as good as the past two years.

2. Has the “big turning point” for global assets arrived?

Going back in 2023 to now, the market has seen several extreme asset pricing — a record high for gold, a record high for the NASDAQ, and a new low interest rate on Chinese bonds (over the past 20 years). There is also the US Treasury interest rate, which is close to a 20-year record high, and the US dollar index.

These assets frequently suggest that the world is undergoing a rare round of reshaping the global order after the pandemic, which is not a short cycle that can be fully explained.

This year, the NASDAQ, Chinese debt, US debt, and the US dollar all began a change in direction. The market is starting to get excited. Has the major turning point in global asset pricing arrived yet?

CITIC Construction Investment Securities uses four perspectives to evaluate the main lines of asset pricing in China and the US. China's domestic demand, US cycle, dollar trend, global manufacturing cycle. After 2022, China and the US are in their respective long cycles.

The underlying driver of America's long-term cycle is a new round of technological revolution (AI), which is also the driving force for the new global cycle.

Real estate is an important determinant of China's long-term cycle. China's real estate also drives the fiscal framework and financial system. The complexity of China's domestic demand, the pace of domestic demand policies, and the mechanism to boost domestic demand are all related to changes in the long-term trend of real estate.

The long trend between China and the US since 2022 has also brought about a larger picture of the global dollar trend and the global manufacturing pattern. Regarding economic trends in China and the US and global asset pricing, CITIC Construction Investment Securities maintains a five-point judgment, which is also a conclusion drawn from observing Chinese and US assets from a longer-cycle perspective.

First, the assets of China and the US are bound to reach a major inflection point.

America will also eventually end the American exceptionalism brought about by excellence in the AI research and development stage.

Second, how did the major inflection point of China's assets arrive? The key is real estate.

CITIC Construction Investment Securities holds the view that the inflection point of China's assets depends on whether interest rates fall to an appropriate level, and real estate moves beyond the old model (financial advantage model) and towards a new model (consumer advantage model).

The importance of real estate to China's domestic demand. The traditional real estate model will eventually be overturned, and consensus was reached on these two points earlier in the market. The current differences in the market mainly focus on the conditions required at the inflection point of real estate — whether China can avoid (or should avoid) a low interest rate experience in Japan, and whether it can embark on a path of boosting demand with Chinese characteristics. This may be the root cause of the current differences in the market over Chinese bonds, the domestic demand sector of China's A-shares, and China's black market trend.

Third, when will the major inflection point in US assets arrive? The key is technology.

There are three main factors that determine the direction of the US economic cycle — technology, credit, and finance. Historical experience shows that the industrial cycle driven by the technological revolution is the most fundamental determinant of the US economy and assets. Once the US starts a new round of technological revolution, the US maintains an absolute leading position in R&D in the early stages of the technological revolution. When US technology is priced globally, US assets are superior to other non-US countries in 2023-2024 (from an asset perspective). Even if the US leverage cycle is declining at this time and the US treasury is tight, it will not affect the upward trend in US assets.

When AI ended the R&D investment phase (the first stage of the technological revolution), the US economy and the absolute dominant position of US assets declined, and the gap between US and non-US assets began to narrow. In response to this round of technological revolution, when AI is actually applied (the second stage of the technological revolution), America's “exceptionalism” will end, and the dollar tide will also usher in a real reversal.

Fourth, DeepSeek announced the advancement of the Sino-US technology game as a dark horse. This is not only a recent new phenomenon, but also a difference between the current round of technological revolution.

Reviewing all the technological revolutions since the 1970s, the United States had an advantage in the first stage (R&D stage) and had an absolute advantage. However, in this round of AI-driven technological revolution, the US has an absolute advantage in 2024. However, in the beginning of 2025, Deepseek marked that Chinese technology is beginning to challenge the US technology monopoly in the first phase. In 2025, the resonance and rivalry of AI between China and the US will increase at the technical level, and China will share the dividends of the AI R&D investment stage. This is a rare situation after reviewing several rounds of technological revolutions since the 1970s.

Fifth, we need to pay attention to the reshaping of global manufacturing brought about by Trump's 2.0 tariffs.

What is surging behind this round of tariffs is no longer a simple industrial game between China and the US, but also involves reshaping the global manufacturing order after the pandemic. The current round of tariffs covers coverage, tax rates, and tariff methods used, which may exceed 2018.

3. How do you view current and future asset trends in China and the US?

Currently, there is still not enough evidence that China's real estate has completely rebounded in the trend. According to CITIC Construction Investment Securities's judgment, China needs to lower interest rates to an appropriate level before it can actually restructure the consumer properties of real estate. At that time, real estate is at a major inflection point. CITIC Construction Investment Securities needs to be more patient in anticipation of a rebound in real estate.

Currently, DeepSeek challenges America's absolute monopoly in AI R&D investment, but AI has yet to enter the actual application stage. Historical experience shows that in the science and technology research and development stage, the US is likely to have a comparative advantage. Judging from this, the major inflection point of US asset pricing in the beginning of the year is also slightly too early.

The long-term trend of real estate supply and demand in China will eventually change, and the impact of real estate on the economy will subside during the model change process. Because the real estate model echoes the major trend of rapid urbanization to a new type of industrialization, this is an inevitable economic development trend in China.

The United States will eventually end its absolute leading position in AI R&D investment for the past two years. Behind it is the inevitable law of technology-driven industrial revolution, from R&D to application, to overall improvement in production efficiency.

Based on the long term, the major inflection point for Chinese assets is gradually getting closer. Judging from the interpretation trends of previous technological revolutions, AI will move from the US to the global, from R&D to full application, and the major inflection point of the US asset and dollar tide is gradually getting closer. If China gets rid of the drag of real estate in the future and undertakes AI applications on a large scale at that time, then China's assets will usher in a spectacular “major turning point”.

Standing in the present, before the real turning point in 2025, 2025 is the eve of changes, and the assets of China and the US will inevitably be highly volatile. What is important for China in 2025: Deepseek marks the arrival of a wave of technology; the traditional economy explores exports out of the trough. In 2025, Chinese stocks, bonds, and stocks can have their own narratives. Without having to trade in the same direction, both stocks and bonds can be strong. In 2025, the US may continue to push forward AI capital spending, and Trump's policy cards will unfold one by one, such as tariffs and finances. Uncertainty in the US and the world is still there, and assets will inevitably fluctuate highly.