Be patient in the face of the rebound! Zhang Yidong's latest interview answers the eight most pressing questions in the current market

"In my opinion, Trump is likely to back down soon, and the Federal Reserve can continue to proceed with interest rate cuts as planned." "If the U.S. sends a signal of easing, global stock markets may experience a rapid rebound. However, we believe the focus should not be on this short-term rebound, as Chinese assets themselves have strong risk resistance. After the situation eases, we should take a long-term view." "Instead of chasing short-term rebounds, it is better to spend more energy building a 'anti-fragile' portfolio." Zhang Yidong, a member of the Executive Committee of Haitong International and Chief Economist, stated this during our exclusive interview yesterday (March 9) after the global market encountered a "Black Monday." Before he finished speaking, Trump indeed TACOed early this morning. One must say, this is the skill of the "old master." In Zhang Yidong's more than twenty years of professional career, he has always placed the most emphasis on fundamentals. During this interview, he repeatedly emphasized the need to abandon short-term rebound thinking, avoid blindly chasing highs, and focus on long-term value layout, which may be a more cost-effective choice. Zhang Yidong reiterated the concept of "climbing high and walking steadily," focusing on securing hard-core assets and value certainty, constructing an anti-fragile portfolio to navigate geopolitical disturbances and seize the U-shaped recovery opportunities of the Chinese economy. As for how to build an "anti-fragile" portfolio, he provided a very detailed breakdown from two key parts. Regarding the hotly debated situation in the Middle East, he stated that it is unlikely to become a systemic risk. However, under the reconstruction of the global order, strategic resources will face systemic re-evaluation. The core value of gold as a hedge against sovereign credit risk remains unchanged, and short-term fluctuations do not affect the long-term bullish pattern. In the face of the recent continuous adjustments in the Hong Kong stock market, Zhang Yidong conducted an in-depth analysis of the three major suppressive factors on Hong Kong stocks: AI anxiety, capital flows, and geopolitical conflicts, bluntly stating that the suppressive forces have already been released, and the current opportunities far outweigh the risks. However, the Hang Seng Tech Index has been excessively sold off and still needs to endure; it may perform better in the second quarter or the second half of the year as the real estate sector stabilizes, but it should not be viewed as a rebound opportunity for tech stocks. Additionally, Zhang Yidong particularly emphasized that current investment layouts should downplay indices and focus on deepening alpha to seize opportunities from the optimization of China's economic structure and the start of the "14th Five-Year Plan." Smart Investor (ID: Capital-nature) has organized the two-hour discussion into eight highly concerned market questions to share with everyone. They are as follows... Will the situation in the Middle East evolve into a systemic risk? How do you view the trend of crude oil? Has the safe-haven property of gold seemingly failed? How do you view the impact of rising energy prices on the Federal Reserve's interest rate cut schedule this year? Has the Hang Seng Tech Index adjusted adequately? How to establish an "anti-fragile" portfolio? How to interpret this year's moderate adjustment to the economic growth target? What issues are institutional investors paying attention to recently? Question 1 The geopolitical conflict in the Middle East is a recent focus of attention. How do you view the future trajectory of this event and its impact on the market? Will it evolve into a systemic risk? Zhang Yidong The probability of the current situation evolving into a systemic risk is low. First, whether this geopolitical crisis evolves into an oil crisis depends on whether it can last for a quarter or even longer, which I believe is unlikely. Second, China is currently in a phase of economic stabilization and bottoming out, the U.S. has just achieved a soft landing, and there are expectations for interest rate cuts, so the risk of a synchronized recession among major economies is still relatively small. Third, the global financial system has not experienced a crisis. Therefore, in the current situation, an oil crisis is more of a rehearsal or has raised concerns without truly forming. At least from the situation in the Strait of Hormuz, the Iranian military has not fully blocked it, only targeting the U.S. and Israel. For China and some other countries, the Strait of Hormuz is still navigable; it’s just that in the past few days, due to concerns about war and shipping insurance, there has been a de facto suspension of navigation. However, as of March 9, the navigation situation in the Strait of Hormuz has improved. Therefore, the probability of a crisis similar to those in 1973 or 1978 is not high. Currently, there are no signs of oil prices transmitting to other commodities, so the probability of triggering global cost-push inflation and subsequently leading to a synchronized recession among major economies remains low. Will major global central banks delay interest rate cuts due to inflationary pressures? This is more of a market sentiment and has not become a reality. In other words, it is still impossible to infer that the Federal Reserve, the European Central Bank, and the Bank of Japan will change their established monetary policies due to the Middle East situation, and we have not seen a cliff-like contraction in the global liquidity environment. Therefore, the current situation is still difficult to evolve into a credit risk, which is our rational judgment. However, if a low-probability event occurs, such as certain political forces exhibiting irrational behavior, the situation would be different. We need to closely observe whether Israel will firmly bind the U.S., dragging it into the quagmire of war, making it difficult to extricate itself. Nevertheless, we still believe this is a low-probability event, and the probability of evolving into systemic risk remains low. Question 2 Current oil prices continue to soar, and today (March 9) there was news of an oil price increase. What is your view on the future trend of crude oil? Zhang Yidong As the great power competition deepens and the global order is restructured, strategic resources will face systematic re-evaluation. The pricing logic will shift from economic interests and efficiency pricing to security pricing and political economy orientation. Strategic resources include crude oil, gold, and military assets. From an economic perspective, since 2023, crude oil consumption has actually lagged behind global supply. If viewed solely from the perspective of economic interests, oil prices should be hovering at low levels. However, this war is neither the beginning of chaos in the international order nor the end of the turbulence in the reconstruction of the international order. If the Trump administration retreats in the short term, the situation in the Middle East and the Persian Gulf may reach an extreme. But a short-term "negation" is unlikely to usher in long-term peace. Therefore, the attribute of crude oil as a strategic resource will be enhanced in the medium to long term. This means that countries need to pay more attention to the uncertainties of geopolitics and elevate their crude oil reserves to a new level to hedge against energy security risks and geopolitical turmoil. Previously, everyone hoped to maintain effective inventories without excessive stockpiles, as too much inventory equates to consumed costs. Now, energy security is regarded as fundamental, ensuring continuous energy supply and smooth operation of the national economy, while also considering the maximization of efficiency. Thus, the attribute of crude oil as a strategic resource will lead to relatively high price fluctuations in the medium to long term. In the face of severe challenges to peace and development, we should place great importance on the strategic resource attribute of crude oil. Question 3 Recently, the performance of gold has broken the simple linear logic of "crisis must rise." How do you view this phenomenon? Zhang Yidong The failure of the risk-hedging logic does not mean that gold is ineffective; rather, it indicates an upgrade in the pricing paradigm. Currently, the pricing of gold is determined by three factors: The most critical factor is the credit risk of sovereign currencies, or even a credit crisis of sovereign currencies. As a super-sovereign asset, gold has long-term value in hedging against currency credit risk, becoming the most certain ballast. The second dimension is that previous geopolitical conflicts were "impulsive," but the international order is being restructured, and geopolitical conflicts are continuous and repetitive. Gold, as the ultimate hedging asset against geopolitical risks, will not see its strategic attribute as a ballast in chaotic times diminished. The reason gold has not performed as well as crude oil during this Middle Eastern geopolitical crisis relates to the third dimension, which is the high volatility attribute of gold. In recent years, the market has formed an overly consistent expectation for gold, believing that it will always rise and will undergo a strategic value re-evaluation. As a result, at the beginning of the year, it rose to $5,600 per ounce, corresponding to a global total market value of gold of nearly $38 trillion, which is equivalent to the scale of the U.S. federal government's debt In other words, when gold rises to $5,600 per ounce, it can basically fully hedge against the credit risk of the US dollar. However, considering the high level of US debt, which will continue to borrow new to pay old, the scale of US debt will continue to expand in the future. At the same time, the sovereign debt of the US and its allies, such as the European Union, the UK, and Japan, is also continuously expanding. As the ultimate safe-haven asset to hedge against the sovereign credit risk of the US and the West, the value of gold is irreplaceable. Therefore, the long-term bullish logic of gold in the medium to long term has not changed. It is just that the rapid rise at the beginning of the year triggered crowded trading, leading to profit-taking pressure, which has resulted in a sensitivity to geopolitical events that does not follow previous patterns, reflecting more as volatility. This precisely indicates that the core value of gold has not been shaken; it is just operating at its own pace. In addition, due to the recent turmoil in the Middle East, the US dollar has shown a noticeable rebound. The market will thus anticipate whether the "petrodollar," which is the pillar of the US dollar, will become solid again. This expectation has put certain pressure on gold in the short term. However, this time is not a replay of the petrodollar story after the oil crisis of the 1970s. The undeclared war between the US and Israel has plunged the entire Middle East into crisis, breaking the basic rules of international order. In this situation, we cannot simply infer that these oil-producing countries in the Middle East will confidently reinvest all their "petrodollars" back into the US market. Conversely, these oil-producing countries will consider their own independence and autonomy more, and will not put all their eggs in one basket; they may consider more diversified allocations, including but not limited to the US dollar, euro, and gold, all of which may become their reserve assets. This diversification process is an irreversible long-term trend. In other words, we believe that the short-term rebound of the US dollar may not be sustained. On the contrary, apart from the US, other non-US central banks in the current phase of geopolitical restructuring are promoting the diversification of reserve assets. From this perspective, the long-term strategic re-evaluation process of gold will continue. Question 4 How do you view the variable that rapidly rising energy prices may raise inflation expectations and potentially disrupt the pace of the Federal Reserve's interest rate cuts this year? Zhang Yidong It depends on when Trump retreats; the earlier Trump speaks, the smaller the risk of rising energy prices pushing inflation. In my view, Trump is likely to back down soon, and the Federal Reserve can continue to proceed with interest rate cuts as planned. The low-probability scenario is that the conflict becomes prolonged, evolving into a model similar to the oil crises of 1973 or 1978. If the situation in Iran continues for several quarters, or if the Strait of Hormuz is constantly threatened by artillery fire Even if Iran does not block the Strait of Hormuz, oil tankers and shipping routes would still be hesitant to pass through, forcing everyone to choose to take detours, which would significantly lengthen the journey. As the cost of oil transportation rises sharply, freight rates will also increase, and the central level of oil prices will follow suit. If the situation further deteriorates, a "black swan" event could occur, and a global energy crisis would drive cost-push inflation worldwide. For the United States, it may have to reverse its interest rate cut plans, and even a gradual rate hike cannot be ruled out. However, the "elimination of Iran's nuclear threat" is inherently a false proposition; if Trump wants to back down, he can easily find a way out for himself. Therefore, we believe this is only a matter of time. Yesterday (March 9), both the Asia-Pacific and European-American stock markets reacted to some extent in anticipation that Trump would soon speak, and that the conflict would quickly ease. Thus, the trend of Fed easing will not reverse, but rather experience rhythmic disturbances. Question 5 Has there been marginal improvement in the current adjustment of Hong Kong stocks? Has the Hang Seng Tech Index adjusted sufficiently? Zhang Yidong Recently, both A-shares and Hong Kong stocks have undergone adjustments, with Hong Kong stocks adjusting more deeply, mainly influenced by three major factors. On one hand, since the beginning of the year, the "AI anxiety" that could disrupt the original expectations of the internet industry has led to adjustments in US software stocks. Hong Kong stocks have been affected by the situation, with e-commerce and gaming sectors in the internet sector being shorted by hedge funds. On the other hand, from the beginning of the year to February 26, the Korean index rose over 50%, and the Japanese index rose over 20%, showing strong performance. Since 2024, foreign capital has gradually flowed into Hong Kong and A-shares; among the most active funds are Korean institutional funds and individual investors, who are very interested in Chinese tech stocks, including components of the Hang Seng Tech Index and internet stocks. At the end of January this year, Korean capital returned to its home market; however, from the end of January to early February, due to significant profit-taking, real foreign capital began to reduce holdings in Korean stocks at high prices, but did not leave Korea. We believe that this adjustment in Hong Kong stocks will prompt Korean institutional investors and overseas investors to reconsider Chinese and Korean assets. In fact, both have their advantages; Korea has a competitive edge in the storage industry, but beyond that, other assets may not offer the same cost-effectiveness compared to Chinese assets. Over the past decade, we have achieved rapid development and even qualitative leaps in AI, robotics, biomedicine, aerospace, and new materials. In an environment of economic stabilization and low interest rates, social wealth will trend towards equity assets, providing support for the market. Additionally, there is also a risk-averse sentiment driven by geopolitical factors. These three major factors have been fully released in this round of adjustment Especially the "seesaw effect" between Hong Kong stocks and the daily market is not entirely influenced by the capital side; to some extent, it is affected by valuation levels. The market believes that assets in Japan and South Korea are more robust and better aligned with the AI trend, belonging to hard technology related to AI. Therefore, from late January to now, the influence of the Korean wave is not solely from the capital side but is more compounded by AI anxiety. However, after this round of significant ups and downs, such concerns are easing. Especially after the recent sharp decline in the South Korean stock market, overseas investors can instead see the stability of Chinese assets and their potential for long-term steady growth. While Japan and South Korea have weaker systemic risk resistance, China, as a major economy, has stronger risk resistance for our core assets. Secondly, with the easing of geopolitical disturbances, we believe that Hong Kong stocks will welcome a trend-repair opportunity, but it may not necessarily be the best performer in the Hang Seng Technology Index. As the Chinese economy stabilizes, with PPI turning positive in the second quarter, quality companies in the Hang Seng Technology Index have a chance for recovery. Originally, everyone thought that China's PPI would not turn positive until the third quarter at the earliest, but with the situation in the Middle East driving a rebound in energy prices, the base effect combined with input price factors may lead to a rise in China's CPI as early as the second quarter, and PPI may turn positive in the second quarter. This way, global investors' expectations for China's domestic demand exceeding expectations and for China to emerge from deflation will be elevated. In addition, we can view the Hang Seng Technology Index not just as a technology stock but as internet consumption; these companies also possess the momentum for short covering and the potential for profit and valuation recovery. Therefore, we believe that the current position of Hong Kong stocks presents opportunities that far outweigh risks. However, it is advisable not to treat the Hang Seng Technology Index as a technology stock for a rebound but to remain calm. Currently, the technological content of the Hang Seng Technology Index more represents "old tech" or non-hardcore technology, and the aggressiveness of this index is different from that of 2013 to 2020. The Hang Seng Technology Index is currently being excessively sold off, reflecting overly pessimistic expectations, even to the point of feeling that the internet is about to be completely overturned, and there are concerns about whether policies will be tightened again. In this situation, the valuations of quality stocks will also be suppressed, and the short interest is very high. Therefore, we believe that if you hold related assets in the Hang Seng Technology Index, it is best to endure for now; the current position is definitely not its reasonable value. At the earliest in the second quarter, or at the latest in the second half of the year, as China's real estate confirms the bottom region and domestic demand stabilizes, the entire pro-cyclical industry will welcome recovery. However, whether buying A-shares or Hong Kong stocks, we believe that it is still necessary to weaken the index. The Chinese stock market has just entered the "early summer" season, where grass grows and birds fly; we should look for alpha based on fundamentals and seek the best assets in China. In a turbulent market environment with significant external uncertainties, although the market seems suitable for trading, it is difficult for most investors to make money from trading. Therefore, we believe that in this year of volatile trading, the best strategy is to be bold in laying out long-term value at low levels, which may be a more cost-effective choice Question 6 How to build an "anti-fragile" portfolio in the current uncertain environment? Zhang Yidong The anti-fragile portfolio mainly consists of three parts. First, strategic resources in the context of a great era. We mainly look for core directions related to strategic resources from four dimensions: security attributes, policy orientation, external dependence and concentration, overseas resources and capacity ratio. First, it must meet security attributes, such as energy security, resource security, food security, key equipment security, national defense security, and supply chain security, all of which are closely related to great power competition. Secondly, with frequent geopolitical conflicts and the international order in a turbulent period of reconstruction, corresponding strategic resources will inevitably face a reversal in valuation. This can be seen in whether the country includes them in planning directories, such as rare earths and food security, which have clear industrial policies and support from fiscal and financial policies. Additionally, strategic resources should also consider external dependence and concentration. For example, our energy dependence on the Middle East is very high, and we need to reduce this external dependence. On one hand, we should increase our own exploration and extraction efforts to strengthen the oil and gas and oil service industry chains; On the other hand, we should achieve energy diversification, whether it is wind power, nuclear power, or future controllable nuclear fusion, related energy technologies and power equipment all belong to strategic resources. Finally, we should pay attention to the proportion of overseas resources and overseas capacity. In specific sub-sectors, I still have confidence in strategic assets like military industry and gold. The long-term value of oil and gas equipment will also face revaluation, and leading companies in the domestic coal sector, as well as hardcore assets in energy technology, are worth considering as strategic assets. Second, focus on internationally competitive Chinese technology and advanced manufacturing hardcore assets. The first category is hardcore assets in Chinese manufacturing. These assets have two major characteristics: first, the non-replicability of capacity; China has a complete industrial system, and products can be mass-produced at low cost and high quality in China, but cannot be replicated overseas. Second, they have technical or engineering barriers. Chinese energy technology-related companies are very advanced globally, with key indicators such as yield and energy consumption life far ahead of the global competition, making it feel impossible for their competitors to catch up. The second category includes future industries or scarce emerging growth assets that align with the direction of the "14th Five-Year Plan." Specifically, within the strategic emerging pillar industries, special attention should be paid to aerospace. The recent changes in the Middle East situation will further enhance the country's strategic support for this field. Future developments regarding military-civilian integration, commercial aerospace, breakthroughs in the C919 large aircraft, and the integration of commercial aerospace with AI technology are all worth looking forward to. Related military actions also reflect the trend of integrating aerospace technology and AI technology, and the development space of the entire domestic aerospace industry chain is worth anticipating In strategic emerging industries, there are also low-altitude economy, new energy, and new materials. New energy includes energy technology, energy security, and energy storage, while new materials cover semiconductors, photolithography machines, and aerospace-related fields. Among these directions, the key to driving the development of emerging pillar industries may lie in aerospace, particularly commercial aerospace. Hardcore technology assets also include future industries, mainly comprising quantum technology, biological manufacturing, hydrogen energy, controllable nuclear fusion, brain-computer interfaces, and embodied intelligence. Biological manufacturing has been explicitly proposed to be developed as a future pillar industry, and under the empowerment of AI and intelligent technology, it is ushering in significant opportunities. Storage is also part of hardcore technology, which includes but is not limited to China. After this round of adjustments, as long as the wave of capital expenditure driven by technology does not come to an abrupt halt, I believe that storage and hardcore applications related to AI both have opportunities. There are many alpha opportunities in these fields, but many related companies have not yet gone public. In the coming years, both A-shares and Hong Kong stocks, especially Hong Kong stocks, will witness a new iteration of the technology sector. Similar to the structural changes in Hong Kong stocks around 2016, when the weight of local finance and real estate decreased, the mainland internet sector became the core supporting force. Hong Kong stocks are a "stronghold" for China's participation in the dominance of the international financial order, and the country will continue to consolidate its position as an international financial center. Leveraging the advantages of "one country, two systems," Hong Kong stocks benefit from both domestic capital and quality assets, providing a foundation for long-term upward revaluation. Therefore, we believe that for the future assets of both A-shares and Hong Kong stocks, we need to be more forward-looking in industry research around their new growth points during the transition of PE investment to the secondary market. In addition, emerging growth industries and mature industries should adopt different pricing strategies. We generally believe that by 2026, whether in A-shares or Hong Kong stocks, hardcore assets will undergo a strategic value revaluation. This includes both traditional hardcore assets and scarce emerging growth hardcore assets. Such assets are rapidly emerging in the Chinese market and will not allow the Japanese, American, or South Korean stock markets to perform alone. After recent significant adjustments, the extent of the adjustment in Hong Kong stocks is greater and more sufficient. In the past six months, the scarce growth assets listed in Hong Kong stocks, representing future directions, have seen a noticeable decline in crowding, and their cost-effectiveness has significantly improved. Therefore, we believe that we can focus on long-term holding plans and explore quality growth assets in IPOs and newly listed stocks during dips. The third part of the anti-fragile portfolio is value certainty. These assets also possess certain high dividend attributes, providing a decent dividend yield. For example, the overall dividend yield of Hong Kong stocks is close to 6%, and the energy-related sector remains close to 5% even after a significant rise. We can further segment cyclical high dividend assets into core cyclical assets. Unlike in 2022 and 2023, when the domestic economy was in a phase of concentrated real estate risk release, high dividend assets then reflected more of a low volatility dividend. Now, high dividends are more inclined towards relatively high dividends, using a certain dividend yield as a safety margin, with a focus on improving prosperity and performance elasticity With the real estate market gradually stabilizing, the rental yield of housing prices in a hundred cities has trendily exceeded the risk-free rate of return. Subsequently, with the addition of policies such as interest rate cuts and reserve requirement ratio reductions, the mortgage interest rates for real estate are expected to decline further by 2026, and the real estate sector will gradually confirm its bottom region. Within the entire real estate chain, high-dividend and flexible assets can also be found. In addition, alpha opportunities can be explored within cyclical core assets. Apart from the real estate chain itself, by the second half of this year, the consumer internet and non-bank sectors may also release performance elasticity as the economy stabilizes. The downside space in these areas is very limited, somewhat resembling the characteristics of convertible bonds. Currently, many investors, especially overseas investors, have significantly underestimated the expectations for China's economic recovery and exiting deflation. In the future, as the expectation gap is repaired, core assets with dividends as a margin of safety within cyclical assets will welcome better investment opportunities. Moreover, attention should also be paid to the stability of cash flow. Core assets with international competitiveness should focus on their balance sheet resilience and the health of their cash flow statements, as these are important points to consider. In addition, their shareholder return culture can also be a focus. Benchmarking against overseas companies, China's leading companies with international advantages are increasingly communicating and engaging with investors, especially with domestic and foreign institutional investors. They are also placing greater emphasis on shareholder returns, with significant increases in dividends and buybacks, and are fully capable of competing with international peers. This is continuously changing overseas investors' misconceptions about Chinese assets. Many Chinese companies have already gained the momentum to go global, but due to the domestic economic downturn, their stock prices have not fully reflected their international competitiveness. For example, the engineering machinery, power equipment, and home appliance industries in China. These industries can benefit from the stabilization of domestic demand and the rebound of PPI, while also benefiting from overseas expansion to achieve market share growth abroad. Question 7 In the recent National People's Congress meeting, it was proposed that "the GDP growth target for the 2026 government work report is set at 4.5%—5%." Compared to the past two years' expression of "around 5.0%," this year's economic growth target has made a moderate adjustment. How should this change be interpreted? Zhang Yidong I think it is very pragmatic, both stable and leaves room for maneuver, which is my overall evaluation. Considering the uncertainties of geopolitical factors, achieving a 5% GDP target this year is actually a significant achievement. However, there are considerable pressures both internally and externally. Externally, whether the situation in the Middle East will further evolve into an energy crisis remains uncertain. Additionally, the global tariff game promoted by the United States may still bring some disturbances this year. The external economic situation will affect China's imports and exports as well as trade surpluses. Compared to last year, the pressure is relatively high. Against the backdrop of last year's high base, the driving force and contribution of exports to the economy will also be correspondingly weakened At the same time, from a domestic perspective, we need to adjust the structure and prevent risks. We are not pursuing GDP for the sake of GDP, but to fully develop areas that are beneficial for China's long-term development, such as high technology and hard technology. However, these high-tech and hard-tech sectors are still relatively immature, and their impact on the current Chinese economy is not yet very obvious. Therefore, we need to concentrate on guiding social wealth and resources to promote innovative development, especially technological innovation, to keep the economy at a level that matches potential growth. Leaving some room can better guide economic development. Thus, a clear direction for 2026 and the entire "14th Five-Year Plan" period is technological innovation and building a modern industrial system. This can better focus on structural upgrades, industrial upgrades, and structural optimization, thereby bidding farewell to the extensive development model driven by factors. I think this is quite good, and it also conveys a message: The recovery of the Chinese economy is not "V-shaped," but rather a "U-shaped" recovery. Overall, the economy will experience a mild recovery, but the trend is more important than the pace. An economic recovery relying on its own endogenous growth momentum is more sustainable and healthier. Question 8 What issues have attracted more attention during your recent overseas roadshows? Zhang Yidong There are mainly three issues. First, the core focus of recent market discussions is still the situation in the Middle East, where there are significant differences in opinions. A small number of investors hold a pessimistic attitude, believing that the U.S. is already difficult to extricate itself from the situation, and that any attempt to ease it may not be achievable. The direction of the Middle East situation is more in the hands of Iran's new supreme leader and Israeli leader Netanyahu, rather than Trump. Investors with such expectations are relatively pessimistic about market trends, and they do not rule out the possibility of the market emerging from a bear market, with any rebound likely being more of an "escape opportunity." Last year's market experience cannot be directly applied to this year. However, most people believe that regarding the Middle East situation, if the U.S. is willing to actively seek a way out, the new Iranian leadership may not be the kind of religious fanatic that everyone imagines. There is a Chinese saying, "Cutting off someone's financial resources is worse than killing their parents," and it will not be as extreme as the outside world imagines. Many overseas investment institutions believe that as long as the U.S. is willing to withdraw, there is a complete possibility for a tacit understanding to form between the U.S. and Iran, easing the situation. Once this happens, the impact of the Middle East situation on the global capital markets will quickly weaken. The global capital markets will return to their own logic, rather than being bound by the Middle East situation. The second focus is the progress in China's technology sector, including AI, military industry, energy storage, and other hard-core technologies that are accelerating breakthroughs. Policy support and the optimized allocation of resources in the capital market are working together, and overseas investors are maintaining a high level of attention on China's technology sector They generally believe that China and the United States are the two countries with the strongest competitiveness in the global technology field. The third focus is whether China's real estate can truly stabilize and when the Chinese economy can emerge from deflation. In fact, by 2026, as our annual strategy title suggests, we need to climb high and walk steadily. Currently, whether it's the U.S. stock market, European stock markets, or the stock markets in Japan and South Korea, including China's A-shares and Hong Kong stocks, the positions are definitely higher than in 2023, 2024, and 2025. Even though Hong Kong stocks have recently adjusted, their position is still significantly higher than in 2024. Therefore, the core of investment in 2026, we still believe, is to climb high and walk steadily. Against the backdrop of the restructuring of the international order, we still need to focus on hard-core assets and the certainty of value. Traditional hard-core assets are mainly concentrated in upstream resources and energy sectors, with the core being safety premium; midstream manufacturing and future assets emphasize the hard-core nature of technology. In A-shares and Hong Kong stocks, look for areas with low stock prices, low valuations, and low crowding to uncover the certainty of value. If such assets exist, their elasticity may exceed expectations, and the certainty and space for recovery will also exceed expectations. Overall, at present, whether in A-shares or Hong Kong stocks, we recommend maintaining patience, slowly searching for quality targets, and not getting too caught up in short-term rapid rebounds. If the U.S. sends signals of easing, global stock markets may welcome a wave of rapid rebounds. However, we believe the focus should not be on this short-term rebound, as Chinese assets themselves have strong risk resistance capabilities. After the situation eases, we should take a long-term view. Rather than chasing short-term rebounds, it is better to spend more energy building a "anti-fragile" portfolio. Based on the long term, focusing on hard assets and adhering to hard logic will allow us to navigate through the fog of geopolitical disturbances and seize the opportunities presented by China's economic recovery, economic structure optimization, and the beginning of the 15th Five-Year Plan. —— / Cong Ming Tou Zi Zhe / —— Editor: Guan Hejiu Editor-in-Chief: Ai Xuan