The Disintegration of the Old Order and the Construction of the New Order

Report Guide

When the collapse of credit occurs at the lowest tier of assets, gold gradually replaces the US dollar to begin pricing all assets, becoming the best indicator of the crisis manufactured by the United States this time. Looking ahead, the dollar order is gradually disintegrating; however, the weakening of the dollar does not mean that all dollar-denominated assets will outperform. US stocks may come under pressure, while Chinese assets may exhibit resilience due to a more thorough process of de-globalization and de-financialization. Returning to the A-shares, the impact of tariff conflicts will be divided into three stages, and the market's focus may vary at different stages. The disintegration of the old order and the construction of a new order is a new proposition for the future capital market. This should mark the beginning of the entire market breaking free from conventional thinking and gazing at the stars. We recommend skipping the first stage of policy game and directly considering the direction of benefits after the second stage, namely the reconstruction of Chinese demand.

Summary

1. Behind the new high of gold: The precursor to the disintegration of the old order.

In past crises triggered by private sector credit risks, the dollar credit backed by the US order remained intact, serving as a safe asset in terms of credit and liquidity. The dollar once priced all assets. For example, in March 2020 and September 2008, there were instances where the dollar rose while all assets, including gold, fell.

When the Trump administration decided to reverse the US trade deficit through tariffs and other means, the US had continuously exported trade deficits due to its stable dollar credit. Meanwhile, surplus countries abroad began to increase their holdings of US stocks and US Treasury bonds due to trade and asset allocation needs, leading to cracks in the trade and financial system. Coupled with the current historically high deficit rate and government debt levels in the US, dollar credit began to waver, US Treasury bonds weakened significantly, and financial system instability increased. Gold began to price everything, becoming the only asset that performed steadily and strongly during the crisis, with its relationship to other assets starting to resemble the characteristics of the dollar previously.

Thus, the rise of gold is the best indication of the deepening crisis manufactured by the US. A pullback in gold may signal a phase of easing in the crisis, with a low probability of a liquidity crisis occurring within the dollar itself.

2. In the chaotic period of order disintegration, the pressures and opportunities of various assets.

When the dollar systematically weakens, the performance of major assets priced in dollars does not necessarily outperform. For US stocks, their fundamental performance widely relies on the resilience of the US economy following the expansion of dollar credit. At the same time, historically, the price-to-earnings ratio of the S&P 500 has generally moved in line with the dollar index, which may also indicate that the valuation expansion of US stocks similarly depends on the increasing advantages of the US economy compared to non-US economies, thereby attracting continuous capital inflow. This means that even if the Federal Reserve releases liquidity to support the market in the future, the value of dollar assets has already declined under the contraction of dollar credit.

For commodities, the phase-specific pressure comes from the impact of the disintegration of the dollar credit structure on demand: currently, iron ore demand is mainly constructed in renminbi, showing resilience this time; copper and aluminum are varieties with demand from both currency systems, experiencing moderate declines; while crude oil itself is "petrodollar," with the US exerting strong influence on both supply and demand sides, compounded by some OPEC production increase effects, making oil the weakest performer this time However, the new order of the "two suns" is also being constructed, where the United States rebuilds supply and China rebuilds demand. Since 1880, when the order enters a reconstruction period, the copper-gold ratio indicator will rise again.

One source of resilience in Chinese assets lies in a more thorough de-globalization and de-financialization. Looking at the two major financial assets formed by past globalization (Chinese real estate and U.S. stocks), China is undergoing de-financialization at a faster pace: gold-priced Chinese housing prices have returned to around 2010, while gold-priced Nasdaq remains at historical highs. Under the extreme assumption of detachment from financial markets and the monetary system, the U.S. cannot become the dominant force in global terminal demand, but China still possesses the most efficient productivity, which is the source of resilience in Chinese assets. The implied volatility of U.S. stocks in the financial market remains high since 2020, while China has already declined to near the central level.

3. Returning to A-shares, the impact of tariff conflicts will be divided into three stages, and the market's focus may vary in different stages.

The first stage is the current period of policy game between the two countries, where there has not yet been a significant transmission to the real economy. The expectation-driven financial market exhibits high volatility characteristics, and this is also the focus of policy intervention. In this stage, the autonomous and controllable sectors benefit from the consensus among participants, making it easier to form a joint force.

The second stage is when the impact of tariffs gradually manifests in the real economy, with declining exports putting pressure on the economy. At this point, the policy focus shifts to the real economy itself, and the necessity for expanding domestic demand policies further increases. The second-order effects of the China-U.S. trade conflict will gradually slow down: referring to the experience of 2018, during the easing period of the China-U.S. trade conflict, the market is more willing to price in domestic demand-related sectors. However, this round still needs to focus on policies that are primarily cross-cycle (long-term mechanisms to respond to changes), rather than simple counter-cyclical hedging. It should be noted that in the current global trade system, apart from the U.S., there are still many countries and regions with a high degree of dependence on China, which also means that even if there are signs of decoupling in direct trade between China and the U.S., a systematic decoupling at the global level is still difficult to occur.

The third stage is as the U.S. systematically changes its foreign trade policy, countries also have demands for diversifying the trade system. China and non-U.S. economies will reconstruct a new external circulation system. After this round of testing, export enterprises will discover new markets, validate their competitiveness, and the duration of valuations will be amplified.

4. Those who gain the way have more assistance, investing in the new order.

The disintegration of the old order and the construction of a new order is a new proposition for the future capital market. This should mark the beginning of the entire market breaking away from fixed thinking and gazing at the stars. We suggest that in terms of allocation, one can skip the game of the first stage and directly consider the direction after the second stage.

First, the construction of Chinese demand will become the focus, but attention should be paid to long-term mechanisms rather than short-term hedging. Recommended sectors include (food, dairy products, beer, cosmetics, clothing, custom home furnishings, tourism, and dining); second, during the process of reshaping the global economic order, the global consensus that "the U.S. is the most important terminal demand" will be broken. The demand and supply under the "two suns" will be rebuilt, recommending: resource products (gold, copper, aluminum, and some minor metals cobalt, antimony, germanium, etc.), capital goods (**engineering machinery, steel, Automation equipment, chemical products, etc.; third, purely undervalued assets (banks, insurance), internal physical consumption + dividends of coal.

Report Body

1 Behind the New High of Gold: The Prelude to the Collapse of the Old Order

This week (from April 7, 2025, to April 11, 2025, the same below), Trump's erratic tariff policy has impacted the credibility of the US dollar, leading to a significant decline in both US Treasury bonds and the dollar, while gold, as another safe-haven asset, continues to rise. In past crises triggered by private sector credit risks, the dollar's credibility, backed by the US order, remained intact, making it a truly safe asset in terms of credit and liquidity. Historically, the dollar has been used to price all assets; for example, in March 2020 and September 2008, the dollar rose while all assets, including gold, fell.

When the Trump administration decided to reverse the US trade deficit through measures such as increased tariffs, the stable dollar credit that the US relied on to continuously export trade deficits began to show cracks in the trade and financial system, as surplus countries increased their holdings of US stocks and Treasury bonds due to trade and asset allocation needs. Coupled with the current historically high deficit rate and government debt levels in the US, the credibility of the dollar began to waver, leading to a significant weakening of US Treasury bonds and an increase in financial system instability. Gold began to be priced for everything, becoming the only stable and strong asset during the crisis, with its relationship to other assets starting to resemble the characteristics of the dollar previously. Therefore, the rise of gold is the best indication of the deepening crisis manufactured by the US, while a retreat in gold may signal a phase of easing in the crisis, with a low probability of a liquidity crisis for the dollar itself.

2 In the Chaotic Period of Order Collapse, Pressures and Opportunities for Various Assets

It should be noted that the weakening of the dollar does not mean that all major assets priced in dollars will improve; it also depends on whether their end demand is still dominated by the US. For US stocks, the fundamental performance on the numerator side largely relies on the resilience of the US economy after the expansion of dollar credit, while its valuation expansion is also closely related to the relative strength of the dollar (the US economy has advantages compared to non-US economies). This means that when the dollar weakens due to the collapse of dollar credit, US stocks will still be impacted.

For commodities, the phase-specific pressure comes from the impact of the collapse of the US dollar credit structure on demand: currently, the demand for iron ore is mainly constructed in RMB, showing resilience in this round; copper and aluminum belong to varieties with demand from both currency systems, with moderate declines; while crude oil itself is "petrodollar," where the US has strong influence on both supply and demand sides, compounded by the impact of some OPEC production increases, oil's performance is the weakest in this round. However, a new order of "two suns" is also being constructed (the US is rebuilding supply, and China is rebuilding demand), and historically, since 1880, when the order enters a reconstruction period, the copper-gold ratio indicator tends to rise again.

For China, one source of resilience in Chinese assets lies in a more thorough de-globalization and de-financialization. In the past, the two major financial assets formed by globalization (Chinese assets and US stocks) have seen China de-financialize rapidly: gold-priced Chinese housing has returned to levels near 2010, while gold-priced Nasdaq remains at historical highs. Under the extreme assumption of detachment from financial markets and currency systems, the US cannot become the dominant player in global terminal demand, but China still possesses the most efficient productivity, which is the source of resilience in Chinese assets. The implied volatility of US stocks in the financial market remains at high levels since 2020, while China has already declined to near central levels.

3 For China, the three phases of tariff impact 3.1 Phase One: Intensified policy game, tariffs have not yet formed a significant impact on the real economy

In this phase, the market is mainly driven by expectations, exhibiting high volatility characteristics, and is also the focus of policy intervention: this past Monday, the market experienced a significant correction, and decision-makers took multiple measures to stabilize the capital market: on one hand, stabilizing forces significantly bought to support the market, and on the other hand, publicly expressing a strong commitment to stability to soothe investor sentiment; meanwhile, a large number of central state-owned enterprises and large private enterprises intensively repurchased to stabilize stock prices. Ultimately, under the resonance of multiple forces, the market stabilized and rebounded continuously, with investor confidence gradually restored. It is worth mentioning that in this phase, the self-controllable sectors benefit from muscle memory, making it easier to reach consensus and form a joint force.

3.2 Phase Two: The Impact of Tariffs Gradually Reflected in the Real Economy, Policies May Instead Experience Marginal Easing

In this phase, the decline in exports puts pressure on the economy, increasing the necessity for economic stimulus policies represented by promoting domestic demand. The phase of the Sino-U.S. trade policy game comes to a temporary end, and there may even be marginal easing. However, referencing the experience of 2018, during the easing period of the Sino-U.S. trade conflict, the market gradually desensitized to the repair of the export chain and became more willing to price in domestic demand-related sectors. Of course, it is still necessary to recognize that policies may primarily focus on cross-cycle policies (long-term mechanisms to respond to changes), rather than simply counter-cyclical hedging.

3.3 Phase Three: Reconstruction of a New Trade System, Market Focus Shifts Back to External Circulation

It should be noted that in the current global trade system, there are still many countries and regions, aside from the United States, that have a high degree of dependence on China. This also means that even if there are signs of decoupling in direct trade between China and the U.S., a systematic decoupling at the global level is still difficult to occur. With the systematic changes in U.S. foreign trade policy, countries also have demands for diversifying their trade systems. As China reconstructs a new external circulation system with non-U.S. economies, export enterprises, after this round of testing: new markets will be discovered, competitiveness will be validated, and the duration of valuations will be magnified.

4 Those Who Attain the Dao Have Many Helpers, Investment in a New Order

The collapse of the old order and the construction of a new order is a new proposition for the future capital market. This should mark the beginning of the entire market breaking free from fixed thinking patterns and gazing at the stars. We suggest that in terms of allocation, one can skip the game of the first phase and directly consider the direction after the second phase:

First, the construction of Chinese demand will become the focus, but attention should be paid to long-term mechanisms rather than short-term hedging, recommending (food, dairy products, beer, cosmetics, clothing, custom home furnishings, tourism and dining);

Second, during the process of reshaping the global economic order, the global consensus that "the U.S. is the most important terminal demand" will be broken, and demand and supply under "two suns" will be rebuilt, recommending: resource products (gold, copper, aluminum, and some minor metals such as cobalt, antimony, germanium, etc.), capital goods (**engineering machinery, steel, automation equipment, Chemical products, etc.);

Third, purely undervalued assets ( banks, insurance), internal physical consumption + dividends of coal

Author of this article: Mou Yiling, Wu Xiaoming, Source: Yiling Strategy Research, Original title: "The Disintegration of the Old Order and the Construction of the New Order | Minsheng Strategy"

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