China is HALO, and the physical entity is the Ark

Report Introduction The physical assets that we have long urged the market to pay attention to are now entering the sight of global investors through various catalysts. In the current world facing technological challenges to industrial order and regional conflicts challenging globalization, the physical assets that were forgotten during the prosperous period of order will have systemic importance. Chinese assets, being the closest to physical production attributes globally, may lead global investors to discover that the HALO assets they have been desperately seeking, which are not subject to disruption, are widely distributed in the Chinese market. Summary 1 Behind the "HALO" Concept: A Calm Understanding of AI This week, NVIDIA's performance exceeded expectations, but its stock price fell sharply. The divergence between EPS and stock price trends since November last year continues, indicating that market concerns about AI disruption persist. This phenomenon may be similar to the weakening of domestic new energy-related assets in 2022: at that time, domestic new energy capital expenditure was still rising and the prosperity was relatively high, but the overall ROE of A-shares continued to decline. More enterprises were transitioning to new energy, and concerns about the deterioration of the supply structure led the capital market to stop pricing the prosperity of new energy-related assets, instead pricing stable energy assets (coal, thermal power) amid intensified industrial contradictions. A similar situation is emerging in the United States, where capital expenditure by tech giants continues to rise, but the profitability of small and medium-sized enterprises continues to deteriorate. AI has not brought about an increase in downstream revenue; rather, it has been more about cost-cutting and market share redistribution by large enterprises. This situation cannot support market growth pricing for the entire industrial chain as it did during the tech bubble period when revenue growth from applications supported such pricing. However, corporate capital expenditure will continue. Investors' focus has shifted to infrastructure and resource sectors driven by AI on one hand, while on the other hand, there are growing concerns about the negative impact of AI on the entire high value-added + light asset industry. At the same time, with the introduction of the "HALO" concept, areas that are not easily replaced by AI have also become a safe haven under these concerns. Since the beginning of this year, heavy asset portfolios in the U.S. stock market have significantly outperformed light asset portfolios, and sectors such as energy, materials, industrials, and utilities in the U.S. stock market have shown significant outperformance in Q4 2025. In the aforementioned industries, if there are assets benefiting from AI on the demand side, they will naturally be more resilient. 2 HALO, Chinese Assets Compared to the U.S. stock market, the revenue distribution of A-shares is concentrated in industries such as mining and manufacturing, which are not easily replaced by AI. From an industry-neutral perspective, the proportion of tangible assets of A-share listed companies in most industries is often higher than that of their U.S. counterparts in the same industry. Chinese enterprises have relatively stronger capabilities to resist potential shocks from AI disruption. From the perspective of value added across all sectors of society, the proportion of value added from China's manufacturing industry and materials-related industries is also higher than that of other major developed economies. Global investors may find that the HALO assets they have been desperately seeking, which are not subject to disruption, will be widely distributed in the Chinese market. The capacity value of Chinese assets will have irreplaceability, and our emphasis on "productivity is wealth" will gradually become a reality. The revaluation of Chinese manufacturing assets has already begun, and capital repatriation + domestic demand recovery is also underway 3. The Increasing Attention of Overseas Governments to Resource Commodities The U.S. Treasury's plans and Zimbabwe's suspension of lithium ore exports indicate that overseas governments are increasingly focused on strategic resources. Although U.S. inventories, represented by copper, have risen rapidly, there is still room for the inventory/annual consumption ratio based on historical data, especially considering that the recovery of AI + manufacturing will increase the denominator of this ratio. Three noteworthy characteristics are: first, on the demand side, reserve demand from governments, particularly in the U.S., is rising; second, on the supply side, resource-rich countries have a high level of control over the supply of these key minerals, and when these countries begin to implement policies such as increasing taxes or export controls, it is easier to disrupt the supply side and lead to price increases; third, resource-rich countries are more inclined to seek development through resources, extending the industrial chain downstream. Under the long-term advantages of "demographic dividends" and "resource endowments," combined with a rate-cutting cycle, this may attract funds to accelerate investments in emerging markets, which will benefit domestic capital goods exports. 4. The Fluctuating Situation in the Middle East: Oil Prices Must Reach $90 by Year-End to Reverse the Downward Trend of U.S. Inflation Following the U.S. and Israel's attacks on Iran, short-term oil price fluctuations are highly probable, and the impact of oil prices on U.S. inflation is worth noting. Over the past three years, the marginal impact of oil price changes on U.S. CPI has weakened due to service sector inflation leading to a decline in the weight of energy-related components, the reduced elasticity of energy component readings under energy transition, and the suppression of employment activities by AI making it more difficult for upstream prices to be transmitted to downstream. Our calculations indicate that a 1% increase in monthly oil prices has a marginal impact of approximately 0.14% on the year-on-year growth rate of U.S. CPI. If oil prices rise to around $90 per barrel by year-end, there is a high probability that the year-on-year U.S. CPI will turn upward, indicating that the disturbances previously experienced in the rate-cutting cycle and manufacturing cycle remain relatively small. 5. China as HALO, Physical Assets as the Ark We have long called for the market to pay attention to physical assets, which are now entering the sight of global investors through various catalysts. The world currently faces technological challenges to industrial order and regional conflicts that challenge globalization. Physical assets, which were forgotten during periods of order and prosperity, will have systemic importance, and Chinese assets are the closest to physical production attributes globally, with revaluation also underway. Recommendations: First, copper, aluminum, tin, crude oil and oil transportation, rare earths, and gold, which are not easily replaced by AI and benefit from AI development and increased government attention to resource commodities; second, the Chinese equipment export chain with global comparative advantages and confirmed cyclical bottoms—power grid equipment, energy storage, engineering machinery, wafer manufacturing, as well as domestic manufacturing varieties at the bottom reversal—petrochemicals, printing and dyeing, coal chemicals, pesticides, polyurethane, titanium dioxide, etc.; third, capturing the consumption recovery channel driven by capital repatriation + easing of balance sheet contraction + trends of personnel entry—aviation, duty-free, hotels, food and beverages; fourth, non-bank financials benefiting from the expansion of capital markets and the bottoming out of long-term asset returns. Report Body 1 Overseas Markets: Concerns Over AI Disruption and Opportunities Beyond AI 1.1 Concerns Over AI Disruption Persist This week, NVIDIA released its Q4 report for 2025 (FY 2026). Despite EPS exceeding market consensus expectations by 5.5%, NVIDIA's stock price fell by more than 8% over three trading days. Although it is not uncommon for NVIDIA to report better-than-expected earnings while its stock price declines, the market's reaction this time was significantly below historical averages, marking the largest drop in the past three years. Furthermore, since last November, NVIDIA's stock price has diverged from changes in EPS, with forward EPS continuing to rise while the stock price has marginally weakened; prior to this, NVIDIA's stock price had shown a tendency to revert to forward EPS over a longer period. From a fundamental perspective, there have been no significant signs of deterioration in the AI industry over the past quarter: the adoption rate of AI among U.S. companies continues to rise, especially among large enterprises, where the adoption rate is nearing 35%, a historical high; at the same time, there are no signs of a slowdown in capital expenditures among U.S. tech giants, with performance guidance for data center-related activities continuously improving. The current market consensus for the total capital expenditures of Amazon, Google, Microsoft, Meta, and Oracle for the full year of 2026 is $67 billion, implying a year-on-year growth rate of over 60%. In fact, the decline in NVIDIA's stock this week and the recent three-month divergence between stock prices and fundamentals may have some similarities to the weakening of domestic new energy-related assets in 2022. In 2022, although capital expenditures in the new energy sector continued to rise, the overall fundamentals of the market weakened, with the overall ROE of all A-shares further declining; amid poor terminal demand support, concerns about the sustainability of capital expenditures and profits of new energy-related companies gradually increased, leading to significant adjustments in the prices of new energy-related assets in 2022. **A similar situation is currently occurring in the U.S. stock market. Despite the continued increase in capital expenditures among tech giants, the overall market fundamentals are deteriorating, with profits increasingly concentrated among large enterprises: the current ROE level of the Mag7 is close to 32%, while the ROE of the Russell 2000 index is basically around 0, and there is also a significant divergence in EPS between the Mag7 and the Russell 2000 index. Due to the significant potential of AI in reducing production costs, there is motivation for the corporate sector to deploy AI, and in the short term, capital expenditures related to data centers still have support; however, what truly worries investors is that the current development of AI has not led to an increase in downstream revenues, but rather the potential risk of AI disruption is threatening the sustainability of revenue on the downstream demand side. This is significantly different from the dot-com era, when the rapid expansion of capital expenditures by midstream internet device companies ultimately led to rapid revenue growth for internet companies represented by Amazon Currently, the market's concerns about the sustainability of capital expenditures and profits under AI disruption are the reasons for the anomalies observed in U.S. tech stocks. 1.2 Opportunities Beyond AI Are Emerging Amid concerns about AI disruption, investors' focus is gradually shifting towards assets that are less likely to be replaced by AI. From current experience, industries that are more easily replaced by AI are mostly information-intensive and create value by eliminating information asymmetry. These industries often have characteristics of light assets, where human resources are their core competitiveness, and the scale of tangible assets per employee is generally low; whereas industries that are less likely to be replaced by AI are more closely linked to the real economy and participate in physical production, typically characterized by heavy assets with a higher proportion of tangible assets in total assets. Comparing the top 10% of Russell 3000 constituents with the highest fixed asset ratios to the bottom 10% with the lowest fixed asset ratios, the heavy asset portfolio has significantly outperformed the light asset portfolio since 2026. By filtering based on the scale of tangible assets per employee and the proportion of tangible assets in total assets, we can find that industries in the U.S. stock market that are less likely to be replaced by AI include utilities, oil and petrochemicals, non-ferrous metals, and coal. Interestingly, the aforementioned industries generally performed well in the 2025 U.S. quarterly reports. The revenue of U.S. utilities and energy sectors exceeded expectations by more than 5%, while the net profit of industrial and materials sectors exceeded expectations by more than 15%. In addition, investment activities outside of AI in the U.S. stock market are also recovering, with capital expenditure growth in the industrial sector of U.S. listed companies rising in Q4 2025, and capital expenditure in the utilities sector maintaining a high growth rate. Specifically, capital expenditure growth in sub-sectors such as electrical equipment, transportation, and durable consumer goods is relatively fast. Industries that are less likely to be replaced by AI can be further divided into those benefiting from AI development and those immune to AI. Driven by the construction of AI-related infrastructure such as data centers, non-ferrous metals represented by copper and the power industry are typical beneficiaries of AI; while industries closely related to physical production, such as steel, petrochemicals, and durable goods manufacturing, exhibit characteristics of being less associated with AI and immune to AI. In the current environment where concerns about AI disruption persist and major tech companies continue to increase capital expenditures related to AI, industries benefiting from AI have good offensive potential; if the impact of AI disruption spreads and capital expenditures related to AI slow down, industries with AI immune characteristics may have stronger defensive potential. 2 Concerns Over AI Disruption: Chinese Assets Are More Resilient From the perspective of A-share and U.S. stock listed companies, the revenue of non-financial assets in A-shares is more concentrated in the mining and manufacturing sectors, which are more closely related to the real economy and less likely to be replaced by AI; while the revenue distribution of U.S. stocks is more concentrated in service-related fields such as healthcare, retail, and media, which may face a higher risk of being replaced by AI. From an industry-neutral perspective, in most industries, the per capita fixed asset scale of A-share listed companies is relatively close to that of U.S. listed companies, but the proportion of tangible assets to total assets is often higher than that of their U.S. counterparts in the same industry; that is, in most industries, Chinese companies are relatively stronger in resisting the potential impacts of AI disruption. From the perspective of value added across all sectors of society, the proportion of value added from China's manufacturing industry and material-related industries is also higher than that of other major developed economies. In the context of growing concerns over AI disruption, focusing on Chinese assets is currently a more prudent choice for investors. 3 Increased Attention to Resource Products by Overseas Governments Since the beginning of this year, overseas governments have continued to increase their attention to strategic resource products: On February 2, 2026, Trump announced the launch of the "Treasury Plan" to store mineral resources listed by the U.S. Geological Survey in the "2025 Critical Minerals List"; just this week, Zimbabwe also temporarily suspended lithium ore exports, as the government hopes to extend the industrial chain to increase the added value created by mineral resources within its borders. There are three noteworthy characteristics: (1) From the demand side, the reserve demand at the government level, represented by the United States, is on the rise. Currently, the security of the critical mineral supply chain has become a national strategic issue, which not only concerns the ability to obtain these minerals but also relates to maintaining or even enhancing industrial competitiveness in strategic emerging industries. In this context, the U.S., Japan, and Europe have successively introduced critical mineral lists, showing two characteristics; ① the types of minerals covered continue to expand, for example, the U.S. critical mineral list in 2018 involved 35 types, while the new list released in November 2025 has expanded to 60 types; ② The high overlap of key mineral lists among the US, Japan, and Europe indicates that the strategic attributes of certain metal minerals are continuously rising. As the global strategic positioning of key minerals continues to shift upward, it increasingly challenges the long-standing low inventory levels maintained in the past market. Taking copper as an example, under the disturbance of US tariff policies in 2025, the copper resources in other regions of the world are showing a trend of concentrating towards the US, further highlighting the "strategic" pricing and allocation of key minerals under the dual logic of geopolitics and industry; in addition, compared to historical levels, the current ratio of US copper inventory to annual consumption still has room for improvement, especially considering that the recovery of AI+ manufacturing itself will increase the denominator of this ratio. (2) From the supply side, due to the high control ratio of resource countries over the supply of these key minerals, when resource countries begin to implement policies such as increasing tax rates and export controls, it is easier to disrupt the supply side and lead to price increases. Measured by the share of production in 2024 from various countries/regions, Africa, Latin America, and some ASEAN countries dominate the global landscape of major key mineral resources, which means that these countries indeed have a higher say in the supply of most resource products, and supply-side regulatory policies may exacerbate price fluctuations of resource products. In fact, in recent years, countries where the risk of resource nationalism has significantly increased have shown a clear "high concentration" characteristic in the supply of various key minerals. (3) Compared to the resource nationalism of the 1970s, the new round of resource nationalism has new characteristics: ① The focus has shifted from the past oil and gas sector to key minerals; ② The demands of resource countries are not merely to pursue complete resource nationalization, but rather to seek development through resources, extending the industrial chain downstream and increasing added value. With the long-term advantages of "demographic dividend" and "resource endowment," combined with the backdrop of a short-term interest rate reduction cycle, it is expected to attract funds to accelerate investment in emerging markets, and the upward signals of reinvestment in emerging markets may become more apparent, which will benefit the export activities of domestic capital goods. 4 The Middle East situation is volatile; if oil prices rise to $90 by the end of the year, it will reverse the downward trend of US inflation. This week, geopolitical conflicts in the Middle East have escalated again. On February 28, the United States and Israel launched operations "Epic Fury" and "Roaring Lion," respectively, conducting military strikes against Iran. In response, Iran initiated Operation "Real Commitment-4" to retaliate against the United States and Israel. Considering that Iran is a significant oil-producing country and has strong military intervention capabilities over the Strait of Hormuz, a crucial oil transport route in the Middle East, the recent attacks by the U.S. and Israel on Iran are likely to cause significant short-term fluctuations in oil prices. The impact of rising oil prices on U.S. inflation may be the primary concern for investors at this time. It is noteworthy that the marginal impact of oil price changes on the U.S. CPI seems to be continuously weakening over the past three years, primarily due to the following three reasons. First, the declining weight of energy-related sub-items: Over the past three years, inflation in the U.S. service sector has been more pronounced, with rising service prices increasing the weight of service-related sub-items in the CPI statistics, while the weights of major sub-items closely related to energy prices, such as private transportation and household energy, have decreased. Second, the price changes of energy-related sub-items have shown decreased elasticity to oil price changes. Since 2023, the correlation coefficients of household energy, private transportation, and public transportation price indices with Brent crude oil prices over a rolling 24-month period have shown a downward trend, likely driven by the ongoing transformation of the U.S. energy structure. Third, the current transmission of upstream prices to downstream in the U.S. may be more challenging. Due to the suppression of employment activities by AI, the current terminal consumption momentum in the U.S. has weakened, reflected in the U.S. PPI year-on-year growth rate stabilizing around 3% since September 2025, while the U.S. CPI year-on-year growth rate has gradually declined. This situation is somewhat similar to the suppression of terminal demand and the difficulty of upstream cost pressures being transmitted downstream after the decline in domestic real estate prices post-2022. After calculations, we believe that a 1% increase in monthly oil prices has a marginal impact of about 0.14% on the year-on-year growth rate of the U.S. CPI. Considering that the marginal decline in the U.S. CPI year-on-year growth rate is 0.3% as of January 2026, assuming that future monthly increases in oil prices can produce a marginal upward pull on the CPI of 0.3%, then the monthly increase in oil prices would need to be around 2%. Given the current price of Brent crude oil at $73.2 per barrel, this means that if oil prices rise to around $90 per barrel by the end of the year, the U.S. CPI year-on-year growth rate would turn upward. 5 Strategies to Address Concerns About AI Disruption Behind the market's concerns about AI disruption lies investors' skepticism regarding whether AI can drive downstream revenue expansion and the sustainability of growth in AI-related capital expenditures. The path to determining who will ultimately emerge victorious in the tech sector is unclear, but investment opportunities beyond AI are emerging. Investment activities are spreading to a broader range of real sectors, with upstream resources and heavy asset industries such as midstream manufacturing gaining favor among investors. Under the concerns of AI disruption, Chinese assets may actually become more resilient. In terms of specific allocation recommendations, first, consider upstream resource products that are not easily replaceable by AI and benefit from AI development and increased attention from overseas governments on resource products: copper, aluminum, tin, crude oil and oil transportation, rare earths, and gold; second, focus on the Chinese equipment export chain with global comparative advantages and confirmed cyclical bottoms—power grid equipment, energy storage, construction machinery, wafer manufacturing, as well as domestic manufacturing sectors that are reversing from the bottom—petrochemicals, dyeing, coal chemicals, pesticides, polyurethane, titanium dioxide, etc.; third, seize the consumption recovery channel benefiting from capital repatriation + easing of balance sheet contraction + trends of personnel entry—aviation, duty-free, hotels, food and beverages; fourth, consider non-bank financials that benefit from the expansion of the capital market and the bottoming out of long-term asset returns. Risk Warning and Disclaimer The market carries risks, and investments should be made cautiously. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at one's own risk