Tao Dong said the opportunity for RMB assets has arrived, the bull market for technological independence is emerging, and warned about the risks of U.S. Treasury bonds, stating "buying gold at a high price won't be a mistake."

Recently, the RMB exchange rate has continued to rise, and foreign investment banks have been optimistic about China, with related asset prospects being highly regarded. Tao Dong, President and Chief Economist of Freshwater Capital (Hong Kong), stated in a recent interview with domestic media outlet The Paper that "the level of optimism towards RMB assets is the highest in the past seven or eight years," and clearly stated that "the opportunity has arrived." He also pointed out that the Chinese economy has shifted from "benefiting from cement dividends" to "benefiting from data dividends," and a bull market in the field of technological self-innovation has emerged. Asset is King: Focus on Two Major Directions Tao Dong believes that we have entered an era where "asset is king," with two major directions worth paying attention to: one is to stay away from assets controlled by (overseas) central banks, and the other is to closely follow the wave of technological breakthroughs. Both paths effectively resist the risks brought by inflation and policy fluctuations. Federal Reserve to Maintain Looser Policies in the Long Run Regarding the Federal Reserve's policy direction, Tao Dong believes that in the long run, monetary policy will still be primarily loose, but may be in an observation period in the short term. He explained that "the massive spending by the U.S. government has created a huge fiscal deficit, leading to the return of overseas funds to the domestic bond market. The Federal Reserve must provide a fiscal backstop, as monetary policy and fiscal policy are two sides of the same coin." However, the rise in service prices in the U.S. is a structural issue, making it difficult to stabilize overall inflation near the 2% policy target in the short term, which is an important economic factor constraining the Federal Reserve's decision-making. Political Game Cannot Be Ignored He mentioned that the political game cannot be ignored either. Powell's term ends in May, and to demonstrate policy independence, there is a high possibility of inaction in the first half of this year; conversely, as the U.S. midterm elections approach in the second half of the year, the new Federal Reserve Chairman may take more aggressive rate cuts. "In the next 6 to 9 months, interest rates are expected to drop to around 3%, which is a neutral level, and the reduction may exceed current market expectations." Warning: U.S. Bond Market Faces Risks Tao Dong also highlighted the risks facing the U.S. bond market, stating, "Thirty years ago when I entered the industry, the market viewed U.S. bonds as zero-risk assets, but this logic has been overturned on three levels." First, the repeated implementation of quantitative easing after 2008 has normalized the central bank's reliance on unconventional monetary policy tools; second, rising interest rates in major economies such as Japan and Germany have triggered the return of previously stranded overseas funds; third, Trump's policies have intensified doubts about the dollar's credibility, and traditional allies' unconditional trust in U.S. bonds has already weakened. Precious Metals Have Long-Term Allocation Value As concerns about dollar credibility emerge, Tao Dong indicated that at this stage, gold "will only be bought at a high price, not at a wrong price," and copper also faces structural demand in AI and power grid construction. If copper prices remain high, aluminum may also become an alternative metal for AI infrastructure and part of national strategic reserves. Therefore, overall, the precious metals and non-ferrous metals sectors have long-term allocation value. This Year Expected to Be the Year of AI Application Landing On the other hand, Tao Dong also predicts that 2026 will be the "year of application landing" for the AI industry, with the focus of competition shifting from "parameter competition and technology competition" to "application competition and profit competition," entering a reshuffling stage. Companies with weak finances may trigger a chain reaction due to financing difficulties. He specifically warned that AI has become the core driving force of the U.S. economy, with related investments accounting for over 50% of total investment, with a large amount of capital tied up in banks, bonds, and private credit. "Once the AI sector experiences severe adjustments, it may trigger systemic risks, at which point the Federal Reserve and the White House will inevitably intervene to stabilize the market." The policy direction may undergo a dramatic turn. The primary risk comes from "crowded trades" Tao Dong also warned that the primary risk in the market in 2026 does not stem from fundamentals, but rather from "crowded trades." When consensus is too uniform, even minor disturbances can trigger severe adjustments, with U.S. Treasuries and the AI sector closely related to this potential risk. Additionally, fiscal sustainability is becoming a global concern, with the U.S. deficit accounting for 6.8% of GDP, and major economies like France and the UK also experiencing high deficit rates. If a major economy were to experience a debt crisis, it could trigger a chain of financial turmoil against the backdrop of the current ineffective international policy coordination mechanism