Alpha Call Episode 8 Live Review | With the US dollar falling and interest rates dropping, how should asset allocation shift gears?

Guest: Sheng Jin | Portfolio Director at Value Partners Group, 27 years of experience in insurance and asset management

Host: Sophie Sun | Futu Institutional and Private Wealth Team

[Macroeconomic Framework: Three Major Expectations Validated Successively] (00:02:30 ~ 00:07:00)

The fluctuation of the US dollar serves as the 'anchor' for changes in the value of all contemporary assets; a weak dollar cycle benefits the revaluation of emerging market assets.After April 8, the intensity of geopolitical conflicts softened, and asset correlations returned from 'uniform convergence' to normalcy. In a weak dollar environment: South Korean stocks, gold spot, Hang Seng, S&P, and A-shares all rose simultaneously.

[US-China Competitive Dynamics and the Deep Value of Chinese Assets] (00:07:00 ~ 00:10:30)

The US accounts for 26% of global GDP but holds 46% of global stock market capitalization; China's GDP represents 16-17% of the global total, yet the market capitalization of Chinese assets does not exceed 7%. This 'scissors gap' reveals a systemic undervaluation of Chinese assets. If the tone of US-China relations stabilizes,the market capitalization of A-shares and Chinese assets is expected to gradually align with their GDP share, making Chinese assets a 'deep value' market.

[Validation of AI Productivity Economy, Ripple Effects Spreading] (00:10:30 ~ 00:19:05)

AI as a 'productivity economy' rather than an 'attention economy' is increasingly replacing humans in performing more complex tasks. Note: Industries related to the new economy may have high valuations but not necessarily high risks; industries tied to the old economy may seem inexpensive, but risks are not necessarily low due to shrinking demand.

[Gold + Stocks are the Core Inflation Hedges] (00:19:05 ~ 00:31:45)

US inflation is at 3.8%. The purchasing power of 1 dollar in 1900 is equivalent to 36.9 dollars today. Holding cash for a century would leave only 2.7 dollars in real purchasing power. Only gold and stocks can withstand inflation; bonds, cash, and real estate are not optimal assets.

Gold:There have been only three major cycles in the past century, each lasting about ten years. The current cycle is driven by central bank purchases, with the Chinese central bank continuously increasing holdings for 18 months. It's recommended to allocate 10-15%, prioritizing ETFs or mining stocks.$ZIJIN GOLD INTL (02259.HK)$$SPDR Gold ETF (GLD.US)$

Korean stock market:The year-to-date increase is approximately 90%, but valuations deviate from historical averages by more than five standard deviations. Reduced from 'significantly overweight' to neutral, it's advisable to realize profits in phases.$CSOP SK Hynix Daily (2x) Leveraged Product (07709.HK)$$CSOP Samsung Electronics Daily (2x) Leveraged Product (07747.HK)$
Taiwan Market:$Taiwan Semiconductor (TSM.US)$Still offers good value for money, with the upward cycle of related tech stocks not yet completed; A-shares as a whole reflect deep value, and equity opportunities look promising.

Core conclusion: The focus of major asset classes should be on gold (inflation hedge + major cycle) and quality stocks, while long-term currency hedging has limited significance.

[Key Risk: Tech Giants' Capex Gap, Signal Requires Ongoing Monitoring] (00:31:45 ~ 00:39:25)

$Microsoft (MSFT.US)$ 、 $Meta Platforms (META.US)$ 、 $Alphabet-C (GOOG.US)$ 、 $Amazon (AMZN.US)$Over the past decade, capital expenditures have closely matched operating cash flow. However, after 2025, Capex will surge while free cash flow declines, with the peak gap expected in the second and third quarters, exceeding 200 billion US dollars in scale.

The current environment is in a phase of risk accumulation rather than mitigation; it is necessary to continuously monitor the changes in Capex and free cash flow of major companies over the next two quarters. "The music hasn't stopped yet, but we need to closely watch for signs of it stopping."

IV. Q&A Session

Q: After a recent sharp rise followed by a pullback in U.S. semiconductor stocks, what stage are we currently in?

A: Technically, this still represents a short-term pullback supported by moving averages, without any trend reversal yet. Inflation data exceeding expectations has significantly narrowed down rate-cut expectations for this year, even sparking discussions about rate hikes, while crowded trades from earlier are being normalized.

Q: What impact does aggressive Capex by large tech firms have on earnings and free cash flow?

A: Investing in AI is fundamentally correct, as not investing equals being left out. $Alphabet-A (GOOGL.US)$ and $Amazon (AMZN.US)$ Early signs of AI monetization have emerged. $Meta Platforms (META.US)$ However, results are relatively lagging. This may be the "toughest" phase, where in Q2, except for certain firms, $Apple (AAPL.US)$ the majority of big companies might see their free cash flow turn from positive to negative.

Q: How should gold be allocated? Through ETFs or mining stocks?

A: The long-term cycle for gold is still in its middle phase, with the core driver being the weakening of the US dollar's credibility and global central banks increasing their holdings. The Chinese central bank has been continuously increasing its gold reserves for 18 months, with gold now accounting for about 9% of its holdings, which is still below the global average of 17%.Individual investors are advised to allocate 10-15% of their portfolio to gold. Gold ETFs or fundamentally strong mining stocks with reasonable valuations are both viable options.

Q: What impact will Trump's visit to China have on the market? Which stocks will see the biggest catalyst?

A: Trump is visiting China accompanied by CEOs from technology and industrial companies. His statements before the trip were positive, and trade teams from both the US and China have already conducted final negotiations at Incheon Airport after the leaders' departure, indicating substantial progress has been made.

Key areas to focus on: $Boeing (BA.US)$ (China is the largest buyer, and order recovery is critical to their survival), $NVIDIA (NVDA.US)$ Jensen Huang and $Micron Technology (MU.US)$ joining the delegation (there may be breakthroughs in advanced computing power restrictions), as well as cooperation in agriculture and energy. If agreements materialize, both A-shares and US stocks will experience a positive boost;The basic assessment is that US-China relations 'can't get much worse, nor can they improve drastically,' and a competitive-cooperative dynamic will dominate the next 5-10 years.。

The above content is for reference only and does not constitute investment advice. If you're interested in discussing asset allocation logic during a weak US dollar cycle, feel free to leave comments in the discussion area!

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