Zhang Yidong's latest view: The US stock market has entered a bear market, gold is facing liquidity shocks, and the Chinese market can actively defend, with a focus on three types of opportunities in the medium term

As the most well-known strategy analyst in the industry, Zhang Yidong, Chief Economist at Industrial Securities, has over 20 years of experience in securities research and is one of the most 关注的 strategy analysts today.

As a New Fortune Diamond Analyst (the first recipient in the field of China's total research), his research areas cover macroeconomics, asset allocation, and global market strategies, particularly known for his forward-looking judgments on technological innovation and capital market trends.

On the afternoon of April 7, amidst significant market volatility, he conducted a roadshow, presenting his views on the latest macroeconomic and market strategies.

He believes that in the short term, liquidity shocks in overseas markets are forming, and the U.S. stock market has entered a bear market. However, a bear market in the U.S. does not mean a bear market globally. After a short-term risk test, the Chinese capital market is facing mid-term opportunities. From a mid-term perspective, the strategic allocation opportunity of the "golden pit" in Chinese assets may be forming.

Key Quotes:

1. The risks faced by the global stock market this time are definitely systemic risks. To illustrate, it is like encountering summer thunderstorm weather, a violent but short-lived systemic risk.

2. The U.S. stock market has clearly started a bear market. There are no winners in a trade war; Trump's tariff plan will backfire.

3. The recent sharp declines in gold and Bitcoin reflect that the market's logic has shifted from risk aversion to liquidity shocks.

4. In the short term, the U.S. may start expanding its balance sheet at any time this week to respond to liquidity shocks, and the market is waiting for Powell to act as the "white knight."

5. From a mid-term perspective, a relatively certain expectation is that the U.S. economy will show signs of recession, and inflation risks in the U.S. will increase in the second half of the year.

6. Another relatively certain expectation is that the Federal Reserve's ability to rescue the market will be far less than in 2020.

7. A bear market in the U.S. does not mean a bear market globally. In the mid-term, the Chinese capital market still needs to focus on fundamentals and internal factors, as these are the core variables that determine outcomes.

8. The logic behind this shock needs to be clarified: the U.S. is on a contraction path in the coming years, while China is on an opening path, actively taking action. In terms of short-term cycles, policy support is likely to be seen in the next week or two.

9. In the short term, adopt a proactive defense, waiting for the storm to pass. Do not leverage; even if bottom-fishing, do not leverage. The essence is in defense, with an emphasis on proactivity.

10. From a mid-term perspective, there are three dimensions for strategic asset allocation in the Chinese capital market. The core focus is on technology. The second is on new consumption, and the third is to actively allocate strategic assets such as military industry and gold based on mid-term considerations.

The U.S. stock market has clearly started a bear market

Zhang Yidong asserted at the beginning of this roadshow that the risks faced by the global stock market this time are definitely systemic risks. To illustrate, the global stock market facing Trump's tariffs is like encountering summer thunderstorm weather, a violent but short-lived systemic risk.

He also believes that the comprehensive tariff policy announced by Trump on April 2 directly impacted overseas stock markets, especially the U.S. stock market, leading to a clear initiation of a bear market in the U.S. stock market. There are no winners in a trade war; Trump's tariff plan has affected the global capital market from a short-term perspective, destroying global social wealth while also backfiring on himself

Short-term Liquidity Begins to Cast a Shadow

Zhang Yidong believes that under the influence of Trump's tariff plan, the short-term liquidity shock in overseas stock markets has also begun to cast a shadow. Both the VIX volatility index in the United States and gold and Bitcoin (are all shrouded in uncertainty). Especially gold, which unexpectedly has not demonstrated its usual safe-haven function.

The recent sharp declines in gold and Bitcoin precisely reflect that the market's logic has shifted from risk aversion to liquidity shock, (this situation) can even be compared to the scene in 2020 when the U.S. stock market entered a bear market, leading to a global liquidity shock.

Zhang Yidong stated that from a short-term perspective, the market is waiting for Powell to start acting as a "white knight," just like during the financial risks faced by Silicon Valley Bank.

The U.S. May Start "Expanding the Balance Sheet" at Any Time

Zhang Yidong also mentioned that Powell recently made it clear that due to the uncertainty brought by Trump's current round of tariffs, U.S. inflation may rise and cast a shadow over the U.S. economy. In this case, Powell may be hesitant to raise interest rates rashly.

He also indicated that in the short term, the U.S. could start expanding the balance sheet at any time this week to respond to liquidity shocks. Therefore, there is a possibility of a rebound in the global market after a sharp decline.

However, Zhang Yidong believes that even if a rebound occurs, it will be difficult for the U.S. stock market to change the overall bearish trend. Historically, looking back at the trade wars of the 1920s and 1930s, as well as the trade war in 2018, it is likely that the U.S. stock market will suffer collateral damage, impacting other overseas countries to some extent.

"Overreaction" in the Stock Market May Shorten the "Pain Period"

Zhang Yidong also believes that the internet era, including the emergence of AI and DeepSeek, has enhanced people's learning abilities, allowing them to quickly understand historical tragedies, which can easily lead to overreactions. This is why the global market has performed so extremely last week and today. However, such overreactions may also shorten the pain period of the trade war.

From a mid-term perspective, the first relatively certain expectation is that the U.S. economy is showing signs of recession, and the risk of U.S. inflation is expected to rise in the second half of the year. According to estimates, the tariffs imposed on April 2 may cause the U.S. GDP growth rate to decline by 0.5 percentage points over 25 years. At the same time, considering the additional tariffs already imposed by Trump, potential retaliatory measures from other countries against the U.S. may arise. This year, the likelihood of a 1% decline in U.S. GDP is relatively high. A recession in the U.S. is a high-probability event this year.

In addition to recession, due to the slow decline of core inflation in the U.S., especially service inflation, since the second half of 2024, coupled with the tariff war and reciprocal measures from various countries, U.S. inflation may exceed expectations in the second half of this year.

If Trump remains obstinate, refuses to compromise on the trade war, and even escalates it, the U.S. is likely to face the risk of recession followed by stagflation this year. Under such a fundamental framework, even if the U.S. stock market experiences a short-term rebound, it is difficult to escape the fate of entering a bear marketOn this basis, the second expectation is that the Federal Reserve's ability to rescue the market will be far less than in 2020. In 2020, there was a liquidity shock combined with a recession caused by the pandemic, leading to unlimited QE. However, this week, the Federal Reserve may resume bond purchases at any time, injecting liquidity into the capital market and bringing about a rebound after the decline. Nevertheless, the rebound cannot change the bearish trend of the U.S. stock market, as the true factors affecting market trends are internal, namely the fundamentals.

The fundamentals in the U.S. indicate a recession followed by stagflation, suggesting that this wave of bull market in the U.S. may have already declared an end. The bear market has also been basically established.

As the global central bank, the Federal Reserve's ability and willingness to intervene in the market will be significantly weakened compared to the past four years. Therefore, Powell stated on April 4 that in the context of high uncertainty in the outlook, monetary policy still needs to be cautiously observed, and it is necessary to wait for clearer information before considering adjustments to policy stance.

Unfortunately, apart from changing the liquidity shock, the Federal Reserve cannot influence Trump and cannot alter the mid-term impact on the U.S. fundamentals brought about by the tariff war.

A Bear Market in the U.S. Does Not Mean a Bear Market Globally

Zhang Yidong's third expectation is that "when the city gate catches fire, the fish in the moat suffer." The U.S. bear market will affect other countries overseas, which is not a problem. However, he suggests that we need to break a "cognitive bias," that is, the U.S. bear market does not mean that global stock markets are all in a bear market. Just like in previous years when the U.S. was in a continuous bull market, many large economies did not enter a bull market.

Zhang Yidong mentioned that in the past few years, China's capital market has actively made structural adjustments during the transition from old to new driving forces, mitigating risks and presenting a trend of oscillation and bottoming out.

Now, facing external risks, we believe that in China, whether in the A-share or Hong Kong stock market, the impact is merely a shock to risk appetite, while in the medium term, it still depends on the fundamentals and internal factors, which are the core variables determining events.

China's Capital Market Will Focus on Internal Factors

He also pointed out that currently, the risk premium in the U.S. is at a historical low, and the risk premium of the U.S. stock market has been negative in the past two to three years (which is actually a characteristic of higher risk, editor's note).

In contrast, the risk premium in China's A-share and Hong Kong stock markets is at historically high levels, even above 6%. This, in turn, proves that the Chinese economy has bottomed out. Once there are policy countermeasures in the future, China's risk premium will decline, while the U.S. risk premium will rise instead.

After the short-term shock, the U.S. bear market is determined by fundamentals, while the opportunities in China's capital market are based on internal factors, policy countermeasures, stabilization of fundamentals, breakthroughs in technology, and the vigorous development of new consumption, which will be a core fundamental reason determining Chinese assets, especially Hong Kong stocks.

In summary, overseas risks are like summer thunderstorms; after a short-term shock, the subsequent liquidity risks, along with the counteracting effects brought about by the Federal Reserve's easing, will lead to a differentiation in global capital markets, ultimately dominated by their respective fundamentalsTherefore, Zhang Yidong's mid-term outlook for China's capital market is that after the storm comes the rainbow. The adjustment in the second quarter does not change the core logic of this round of asset revaluation in China; internal factors are the key variables determining the overall trend of A-shares and Hong Kong stocks. From the dimensions of internal fundamental and capital aspects, let's discuss the macroeconomy.

Macroeconomic "East Stable" and "West Turbulent"

Zhang Yidong's view on the macroeconomy is "East Stable, West Turbulent."

"East Stable" refers to the stability of China, where our dual circulation economic development pattern will become an anchor for stable growth in the world economy. "West Turbulent" indicates that the Trump administration's neighborly policies, whether through trade wars or geopolitical reports, have made the international political and economic situation increasingly unstable and unpredictable.

Currently, the U.S. stock market resembles the Hong Kong stock market in 2021. At that time, overseas investors also believed that the Hong Kong stock market had many unpredictable factors, and this term can now be applied to the U.S. stock market.

In the turbulent environment of international political and economic situations triggered by the U.S., the unpredictability of the Trump administration is increasing, which will have a growing impact on the U.S. stock market. Therefore, the investment attributes of the U.S. stock market are weakening, while trading attributes are strengthening, leading to an increase in risk premiums and a reduction in valuations.

In contrast, China is driven by both internal and external dual circulations. In terms of external circulation, we have become advocates of globalization, actively promoting and building an open world economy, fighting against isolationism and tariff barriers, injecting new vitality into the world economy.

At the same time, as the world's second-largest consumer market, with the most complete and largest industrial system and supporting capabilities, we can fully engage in external large circulation with non-U.S. countries.

Timing is "Just Right"

Zhang Yidong pointed out that the logic behind this shock needs to be clarified: the U.S. is on a contraction path in the coming years, while China is on an opening path, a proactive approach. In the short term, we will definitely see policy support in the next week or two.

Now is the time when the winds are high and the waves are rough; the opportunity is right here.

We have many good cards in monetary policy, fiscal policy, and industrial policy, allowing us to take more proactive actions. This includes improving social security for the elderly and children, which is beneficial for long-term strategy and can also stabilize the situation in the short term, achieving multiple benefits.

From a mid-term perspective, we are the world's second-largest consumer market, with the largest middle-income group globally. Most importantly, in the near term, the rental yield of real estate and second-hand houses in first-tier cities and some second-tier cities has already exceeded China's risk-free return rate. The Chinese real estate market is expected to bottom out and stabilize within 25 years, and China's enormous domestic demand potential will be unleashed.

Subsequently, fiscal policy, monetary policy, and industrial policy will focus on improving the efficiency of domestic large circulation, encouraging technological innovation, and creating new advantages for China's future development. Therefore, new productive forces will be a priority, benefiting both short-term stability and long-term strategy, while also meeting China's actual needs.

This Round of Technological Breakthroughs Looks at China's AI

Zhang Yidong believes that the next breakthrough in global technology will depend on China's application side, including AI Agents and robots.

Considering that China is one of the world's largest domestic markets, with a high penetration rate of the internet, and a population of nearly 200-300 million people from the post-90s and post-00s generations, which is larger than the total populations of Japan and the United States, we are very confident that this time the breakthrough in technology applications will occur first in China. It could happen as early as June or July, or at the latest in the fourth quarter.

This time, China's robotics and AI applications will see sustainable commercial monetization paths. The new consumption represented by technology consumption and service consumption in China will usher in an explosive period, forming a virtuous cycle that brings continuous bursts of effective supply for technological capital expenditure.

No Need to Worry About Funding

Now let's look at the funding situation. Policies are actively guiding domestic and foreign capital to increase their holdings in the Chinese stock market, and the trend of increasing holdings in A-shares and Hong Kong stocks will continue despite short-term fluctuations. Today, many funds are fleeing in a panic, but we believe that good wine does not fear the deep alley. China's 150 trillion yuan of household savings, 30 trillion yuan of bank wealth management, along with a large amount of pension funds, corporate funds, and social insurance funds, all need effective asset allocation. Currently, the risk-free return rate is very low, while A-shares and Hong Kong stocks, under the active guidance of policies, have already moved towards progressive returns, laying the foundation for value investment.

Taking A-shares as an example, the dividends in 2024 will exceed 2 trillion yuan, along with buybacks, far surpassing IPO refinancing and shareholder reductions. This is even more evident in Hong Kong stocks, where dividends and buybacks far exceed net financing. Therefore, we believe that the reallocation of social wealth in China will become the dominant force in the funding landscape.

Follow the "Visible Hand" for Value Investment

Zhang Yidong finally said that he has never seen such a decline in his 20-plus years of career, which is truly unprecedented.

However, referencing the path of the 1997-98 East Asian financial crisis, the Hong Kong market is not like Asia, which is not rootless floating weeds, but rather has inflows of domestic capital and the protection of the country and the central government. From a strategic perspective, considering issues from the dimensions of trade wars, technology wars, and financial wars, since others want to fight, we will follow suit. The most feared situation is that we have no response, but we already have a response, so we should not be scared by others. We need to follow the visible hand for value investment.

He anticipates that in the second quarter, to hedge against overseas risks, the country's policies will be more proactive in stabilizing the economy, the stock market, and the real estate market. Especially stabilizing the stock market is a clever move that can enhance expectations and boost confidence.

In light of today's market shock, everyone should see the rainbow after the storm. Whether in A-shares or Hong Kong stocks, we are confident. Especially in Hong Kong stocks, domestic capital will be the true backbone of the future. Those who lack confidence have left, but the fundamental factors will still dominate the long-term trends of the stock market. Everyone should maintain confidence.

Short-term Active Defense, Waiting for the Storm to Pass

Zhang Yidong finally mentioned investment strategies. He believes that short-term active defense is necessary, waiting for the storm to pass, and do not leverage; even if bottom-fishing, do not leverage. It’s better to wait and see rather than rush to bottom-fishActive defense is fundamentally about defense, with the essence being active rather than passive defense. Passive defense is extreme pessimism, even liquidating positions and shorting the market. In investment, one must still uphold the bottom line, focus on the long term, and pay attention to fundamentals.

Zhang Yidong believes that there are two possibilities for short-term strategies: optimistic and pessimistic scenarios. In an optimistic scenario, we should be more proactive and move in tandem with the visible hand. Special attention should be paid to Hong Kong stocks, as they are relatively smaller in size and can be more easily influenced.

He suggests having a red heart and two hands prepared, and not to easily use leverage at this time. Investors with leverage should reduce it as soon as possible to avoid liquidation under uncontrollable risks, thus losing the opportunity to follow the pace of victory and see the chance for asset preservation and appreciation. Even in a pessimistic scenario, we do not recommend blindly panicking and selling off; one must control leverage and can hedge appropriately.

The Golden Pit in "Three Dimensions"

From a medium-term perspective, utilizing the volatility period in the second quarter, there are three dimensions for strategically allocating assets in the golden pit at low points.

The first dimension, the core of the core, is the technology main line. The technology main line is taking root, and strong winds reveal the strength of the grass. Previously, the technology main line leaned more towards certain themes, but now patience is required in layout, focusing on leading technology companies that are likely to realize AI business models, especially some internet companies in Hong Kong stocks and robotics and chip companies in A-shares. These enterprises with technological content, including those in the semiconductor sector that are self-controlled, are worth patiently allocating at low points.

The second dimension, also a main line, is the opportunities in the new consumption sector, such as the trendy toy sector. These areas have significant profit-taking potential, with considerable excess returns since the beginning of the year. Therefore, at this time, one should patiently wait and look for better cost-performance opportunities after a pullback, but the long-term logic remains clear.

The third dimension, based on the medium term, includes strategic assets worth allocating, such as military industry and gold, which hedge against the fragility of the international order and the turbulence of the existing international system. Particularly for gold, the short-term decline is due to liquidity shocks; once Powell hedges, gold still has strategic allocation value. Additionally, the global military industry is expanding significantly. Therefore, gold and military industry are traditional wisdom and strategic assets.

In summary, after the storm comes the rainbow. In the face of short-term uncertainties, one should have confidence in China and the Chinese stock market. It is essential to maintain a medium- to long-term strategy and cherish Chinese assets, including the adjustment period during the revaluation process of Hong Kong stocks and A-shares. This adjustment period is a time for calm reflection and also a period for strategic allocation.

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk