The US-Iran war has led to persistently high oil prices, impacting the global economy. Coupled with the re-emergence of issues in the US private credit market, the financial markets continue to face turbulence. Veteran investment advisor He Qichong stated that for a million-dollar portfolio, &#34;defensive positions must be increased,&#34; with long stock positions making up 30%, focusing on stable large-cap stocks; complemented by 20% in gold and 30% in short-term savings insurance or bonds to build a defensive line; only retaining 10% of the portfolio for short-term trading.
Reporter: Ye Zhuowei
<h2>Deploying Ground Troops Could Cause Market Turmoil</h2>
He Qichong believes that current investments need to strengthen defenses, starting with the US-Iran war, as the market was initially too optimistic, thinking the US could easily achieve victory, but it has now developed into a situation that is unlikely to end soon, with a greater impact on international oil prices than expected. He believes that Trump currently faces two choices: one is to find a way to step back, such as claiming to adhere to the initial 4 to 5-week timeline, having destroyed many targets and ending military actions, which is what the market often refers to as &#34;TACO (Trump Always Chickens Out),&#34; but the situation in the Middle East will remain chaotic for a while. The second option is to deploy ground troops to force a change in Iran's leadership, &#34;at which point global stock markets will experience another wave of significant turbulence.&#34;
At the same time, concerns about US private credit have resurfaced, with Morgan Stanley and private credit giant Cliffwater recently restricting fund redemptions from their large private credit funds. He Qichong pointed out that the US-Iran war may trigger many investors to accelerate withdrawing funds from the private credit market, &#34;the issue with private credit is that it has been lent to companies with low repayment capabilities,&#34; he cited a report from last year estimating that about 15% to 20% of companies receiving private credit do not generate enough profit to cover interest payments. If the US economy deteriorates, these companies may be unable to repay interest, and the entire private credit market may have 25% of its capital recovery ability in doubt. Additionally, the contraction of the credit market is expected to affect small and medium-sized tech companies, which may ultimately impact US stocks.
Furthermore, US tech stocks have frequently been associated with &#34;AI bubble theories.&#34; He mentioned that the stock prices of some tech sectors have overly reflected AI prospects, while the costs of AI hardware continue to rise, raising doubts about whether tech companies can recoup those expenses within the hardware's lifecycle. He believes the market will gradually account for these investments by mid-year. For example, in the past two years, some software stocks surged to nearly 100 times their price-to-earnings (PE) ratios due to the &#34;AI+&#34; concept, but some companies continue to incur losses. &#34;However, this year, as the market begins to worry about whether artificial intelligence will directly replace software stocks, their PE could be halved,&#34; even if these companies continue to grow, their stock prices could still drop by half.
<h2>Republican Midterm Elections May Face Setbacks</h2>
Another factor that cannot be ignored is that the US will hold midterm elections in November. He Qichong candidly stated that since Trump took office, inflation in the US has not significantly cooled due to tariffs, and now being embroiled in another war may put pressure on the Republican Party's election prospects. Trump, who can only complete his current term, has long had &#34;grand plans,&#34; and if the Republican election campaign fails, he may be more likely to use presidential powers at all costs, which could lead to even greater market volatility
Under various unstable factors, the defensive strategy deployed by He Qicong allocates 20% to gold. He particularly noticed that whenever the market stabilizes slightly, gold prices immediately strengthen, &#34;This reflects the increasing demand from investors for asset preservation during Trump's term.&#34;
Another 30% of the assets are in long positions in stocks. &#34;When buying, the valuation of the shares must have a certain defensive margin to be considered a worthwhile opportunity.&#34; Among U.S. stocks, he pays attention to Microsoft (MSFT) and Google's parent company Alphabet (GOOG), as these two companies have a higher coverage for future AI applications. Microsoft’s forward price-to-earnings ratio (Forward P/E) recently fell to its 2022 low, and its direct impact from the war is relatively low, providing a better defensive margin.
<h2>&#34;Lobster&#34; Concept Boosts Tencent and Alibaba</h2>
In the Hong Kong stock market, He Qicong is optimistic about Tencent (700) and Alibaba (9988), both of which can benefit from the recent &#34;Lobster (OpenClaw)&#34; AI application craze. Tencent has WeChat as a &#34;super entrance&#34; in China, and with its excellent execution capabilities, it is believed to be the most likely to implement Lobster. Additionally, Lobster will increase the demand for cloud computing power, which Alibaba Cloud, the market leader in mainland China, may benefit the most.
He Qicong also pointed out power equipment stocks, such as Dongfang Electric (1072) and Harbin Power (1133). Firstly, the global development of AI is driving a surge in electricity demand, and China is far ahead of Europe and the United States in clean energy infrastructure. Secondly, after the U.S.-Iran war, it is believed that Europe will re-examine energy security, leading to a significant increase in demand for clean energy equipment from China. He also recommends allocating high-dividend stock ETFs in Hong Kong stocks to increase defensiveness.
As for short-term trading, He Qicong only keeps a 10% position to capture market fluctuations. The simplest approach is to trade the Hang Seng Index, for example, entering the market in three batches within the range of 24,000 to 26,000 points, adding a batch every 800 or 1,000 points lower, increasing the stake as it declines.
<h2>Saving to Buy U.S. Bonds and Compounding Interest</h2>
He Qicong once led the structured products department in an investment bank and frequently appeared to share structured product strategies. However, do not assume he is keen on short-term trading of derivatives. He admits that during his time in investment banking, he was also prohibited from investing in derivatives, &#34;The life span in investment banking is short; basically, very few people can work into their fifties or sixties in investment banks.&#34; Therefore, he made long-term financial arrangements early on, investing in various income-generating products, and the &#34;snowball effect&#34; of compounding interest is quite considerable.
He suggests that investors pay attention to short-term savings insurance with a duration of one to three years, as well as the current 2-year U.S. Treasury bonds yielding about 3.7%, both of which outperform the current bank fixed deposits yielding about 2 cents. These income-generating products can account for 30% of a million-dollar portfolio. He particularly reminds investors to avoid purchasing U.S. bonds with excessively long maturities due to the uncertainty of Trump's policies, which could trigger black swan events in the long bond market.
Finally, he reserves 10% of the million-dollar portfolio for real estate-related stocks. He Qicong states that although there is limited downside space for property prices, if the external environment deteriorates further in the second half of the year, there may still be opportunities to enter the market. He suggests that individuals with housing needs and stable jobs should reserve funds for such opportunities. This 10% can also consider real estate stocks or REITs as alternatives, such as Hang Lung Properties (101), Swire Properties (1972), Cheung Kong Property (778), and Link REIT (823)
However, when buying Link REIT, it is advisable to wait for the next performance report to understand the situation regarding lease renewals and rent reductions, as well as their impact.
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The US-Iran war has led to high oil prices, impacting the global economy, while issues in the US private credit market have resurfaced. Investment advisor He Qicong suggests that in a million-dollar portfolio, 30% should be allocated to long positions in stocks, combined with gold and short-term savings insurance to enhance defense. The market's optimistic expectations regarding the US-Iran situation have been shattered, and Trump faces choices that could lead to significant fluctuations in the stock market. The private credit market also faces risks, as some companies' profits are insufficient to cover interest payments, and the contraction of the credit market will affect small and medium-sized tech companies

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Defensive strategies against market volatility and the explosion of private credit: He Qichong: Long stock positions account for 30%, savings with guaranteed interest outperform fixed deposits | Million-dollar portfolio