Dialogue with Noah CEO Yin Zhe: How to make asset portfolios "anti-fragile" in the face of "technological deflation" and "debt expansion"?

When it comes to wealth management, "outperforming CPI" is a familiar goal for the public. However, the wave of technology represented by AI is driving a "technology-driven deflation." This poses challenges to traditional asset allocation strategies and presents new opportunities for investors. How can one build a "anti-fragile" investment portfolio that can withstand risks while capturing growth in such an environment?

Recently, at the Noah Ark Global Chinese Wealth Management and Inheritance Summit, Noah Holdings CEO Yin Zhe had an exclusive dialogue with Wall Street Insights, interpreting the latest release from the Noah CIO office and sharing insights on topics such as "dual-benefit assets," global asset allocation, and risk management.

The following are the key points from this dialogue:

1. Farewell to the old map: The dual drive of "money printing machine" and "AI"

The underlying narrative of investment is changing. We are facing two major trends: on one side is the classic inflation narrative of "debt monetary expansion"; on the other side is the new paradigm of "technology-driven deflation." Companies are enhancing efficiency and creating profits through AI. In this context, the key to building an asset portfolio is to find "dual-benefit assets" that can capture the dividends from both ends.

2. Upgrading risk management cognition: Strategy diversification is as important as asset diversification.

In a world where "black swans" are frequent, building a "resilient portfolio" is imperative. However, true resilience does not come from simple stock-bond allocation; in extreme cases, the correlation between different assets may strengthen. The real hedge may come from the strategy level—"the importance of strategy correlation is higher than that of asset correlation itself." Deploying different strategies such as long-short and quantitative hedging in the secondary market is the core secret for professional players to withstand systemic risks.

3. Global opportunity scanning: Locking in three major sources of "Alpha."

To seek excess returns above a reasonable return of 6%-12%, investors can focus on three directions:

• The dual opportunities of AI: On one hand, capture the market Beta of tech giants through index funds, and on the other hand, capture the Alpha of early-stage innovative companies through specialized funds.
• Real estate as a "ballast": Focus on rental apartments in core population inflow areas such as the United States, Singapore, and Japan, as these assets can provide stable cash flow returns of 8%-10%, serving as the "ballast" of the portfolio.
• Beneficiaries of geopolitical tensions: Against the backdrop of increasing geopolitical friction, Japan's economy and assets are experiencing structural opportunities.

Q: Hello, Mr. Yin. The Noah CIO report mentions the theme of the "dual pull" between "technology-driven deflation" and "debt monetary expansion." Can you provide us with a deeper interpretation of this concept?

Yin Zhe: The assets we will have in this environment are called "dual-benefit assets." To understand this, we must first comprehend the two core forces acting on the market simultaneously.

The first force is the classic "debt monetary expansion." For a long time, the core logic of investment has been to resist inflation. Because whether in China or the United States, money is continuously over-issued. The fundamental reason behind this is that the growth of the economy requires corresponding monetary supply to maintain operation. Therefore, investment returns must keep pace with the growth rate of money (M2), which is what we often refer to as "outperforming CPI," and this is the most basic requirement for investment This traditional logic is still valid today and has not disappeared.

The second force is the emerging "technology-driven deflation." This is a new paradigm driven by technological advancements that creates entirely new sources of value. We focus on two types of assets:

AI-benefiting assets: Represented by AI, as the scale of application of a technology increases, its operational efficiency will also rise, ultimately resulting in a sharp decline in production costs. This cost saving brought about by technological progress is directly reflected in financial terms as an increase in profits and new sources of revenue.

Scarcity consensus assets: These assets have a constant total supply, and their value forms a high degree of consensus globally. With the increasing emphasis on digital currencies and the maturation of regulatory frameworks in places like the United States, Singapore, and Hong Kong, these assets must be considered from an asset allocation perspective.

Therefore, we define "dual-benefit assets" as those that can obtain returns from both "anti-inflation" and "technology-driven deflation," two different sources. This is the logical cornerstone of our current investment portfolio construction.

Q: The report also emphasizes geopolitical risks. What new challenges have the frequent "black swan" events in the past two years brought to asset allocation? How should investors build a more "resilient" investment portfolio?

Yin Zhe: We have indeed entered a new era. For the past few decades, we have been accustomed to the idea that "the world is flat," where each party benefits under the WTO globalization system. However, now, phenomena such as geopolitical tensions and the return of manufacturing are frequent, leading to a significant shift in the trajectory of stable development.

This means that uncertainty has greatly increased for investments, and we can no longer use traditional thinking and inertia to invest. In the past, one might only consider stock and bond allocations, but now more diverse strategies must be included. For high-net-worth individuals, the urgent task is to build a more "resilient" wealth portfolio that can cope with extreme situations. For example, in the event of extreme trade conflicts, if tariffs soar and supply chains are disrupted, what will happen to prices? Signs of these risks have already begun to emerge; although we are currently in a tug-of-war phase, no one can predict the future. We certainly hope not to head towards extremes, but if it happens, investors will face significant losses. Therefore, enhancing the diversity and overall resilience of the investment portfolio is the most important thing right now.

Q: Specifically, what assets or strategies can help investors combat this fragile market environment?

Yin Zhe: There is no single asset that can respond to all market changes. Therefore, we have always emphasized portfolio investment. Moreover, today's portfolios are much more complex than in the past, with higher complexity. We can build from several levels:

The first level is geographical diversification. You need to consider allocations in different regions around the world.

The second level is asset class diversification. In addition to traditional stocks and bonds, alternative assets also need to have a place.

The third level is strategy diversification. Even within the same asset class, such as stocks, different strategies (like long-short strategies) can be employed for risk hedging Effectively combining these tools is a core topic in current investment. Specifically, the construction of an investment portfolio can be divided into three parts:

Wealth Safety Net: This refers to the bottom warehouse allocation, which needs to be solid enough.

Stable Foundation: Ensuring that the portfolio does not sway due to severe market fluctuations.

Future Growth Points: This means seizing opportunities that can bring new growth engines, such as AI. I believe these aspects are all very important.

Q: The Noah CIO report provides specific allocation plans for overseas assets and RMB assets, mentioning assets in US stocks, European stocks, Hong Kong stocks, and A-shares, but not Japan. The Japanese stock market has seen significant gains in recent years. Does Noah not have a positive outlook on the future performance of the Japanese stock market?

Yin Zhe: We suggested to clients to pay attention to Japan as early as two years ago. Warren Buffett's investment in Japanese trading companies also confirms this trend. We are optimistic about Japan, mainly based on two observations: First, in the context of the geopolitical environment, especially with instability in Europe and escalating Sino-US tensions, Japan and Southeast Asia are likely to become beneficiaries. Second, during our business operations in Japan this year, we found clear signs of an economic rebound, and the number of Chinese expatriates visiting Japan has significantly increased, providing tangible support for the local economy. We also established a branch in Japan this year to actively explore this market.

Q5: The annualized return target for the global asset and RMB asset allocation combinations in the report is 10%-15%. What specific assets does Noah recommend to achieve this target?

Yin Zhe: Frankly speaking, 10%-15% is quite a high target. For a well-diversified investment portfolio, a more reasonable long-term expectation might be between 6% and 12%. To achieve higher targets, we focus on the following assets:

1. AI Beneficiary Assets: There are clear dual opportunities here. One end is large-cap stocks like American tech giants, which are the market's "Beta" **and can be easily shared through index funds. We often say "don't short the US lightly" because of its strong tech fundamentals; the other end is more innovative startups that can provide excess returns, or "Alpha."
2. Hedge/Fund Securities: In China, the market is significantly influenced by capital flow; whereas overseas, especially in the US, market strategies are more mature and diverse, requiring professional fund managers to capture opportunities.
3. Specific Real Estate Assets: We are particularly optimistic about rental apartments in areas with continuous population inflow (such as the US, Singapore, and Japan). These assets can provide very stable and considerable cash flow returns, serving as an important "ballast" in the portfolio.

Q: In the RMB asset allocation plan, the focus is on quantitative hedging strategies. Does this mean Noah is relatively cautious about the future trend of A-shares?

Yin Zhe: This is mainly based on our judgment of market driving factors. Currently, the A-share market is largely "capital-driven." Of course, there are opportunities in any market. We have observed that the three main strategies that performed well in the A-share market over the past year are: one is macro strategies that accurately grasp the macro pulse; Secondly, we have identified a selected stock strategy focusing on companies with global capabilities and solid fundamentals, like Pop Mart; thirdly, we have effectively hedged market risks through a quantitative hedging strategy using models.

This once again illustrates that in a complex market, the diversity of strategies is crucial.

Q: At today's summit, you had a dialogue with Nassim Taleb, the author of "Antifragile." Based on his theory, what "black swan" or low-probability risk events should investors be most wary of in the near future?

Yin Zhe: If it can be accurately predicted, it wouldn't be called a "black swan." However, from a risk management perspective, the biggest risks often come from the most crowded trades and the most consistent expectations. As the market adage goes: "Markets are born out of despair, grow in skepticism, and die in euphoria." When everyone is optimistic about something, one should be highly cautious.

If I had to point out a specific area, I believe it is the global monetary system. In the current complex environment of high global interest rates and high debt, any severe fluctuations in this system could have a tremendous and unpredictable impact on global asset prices