The main storyline will become even clearer after the holiday.

Summary

1. Global Assets: Rebalancing Continues

In our weekly report before the Spring Festival, “High Cut Low and Simple Questions,” we pointed out that the current market’s high cut low is based on coordinated recovery both domestically and internationally. At the same time, as AI trading gradually enters its second phase, divergence within the technology sector may become the norm in the future. From the global market performance during the Spring Festival period (2026/2/16–2026/2/20), risk assets tended to rise overall, but with internal differentiation: (1) Continued rebalancing of global equity styles: sectors such as industrials, financials, and energy continued to be favored. Notably, while industrial metals digested crowded trades at high levels, resource-rich markets like Brazil began to surge; (2) Divergence within tech assets: software stocks represented by cybersecurity continued to face selling pressure after a slowdown in decline, while segments facing genuine supply-demand shortages, such as storage, rebounded strongly. The market’s focus is no longer whether AI is a bubble but, as AI shifts from a theme to a macro factor, actively seeking industry impacts and key contradictions and shortages. On commodities, crude oil performed the best, with short-term geopolitical tensions between the US and Iran boosting geopolitical premiums, and in the medium term, the increasing importance of the “petrodollar” cycle may support oil prices.

2. Further Upturn in Manufacturing Cycle

This week, the US released Q4 2025 GDP data. Although overall growth was below expectations, the main drag was government spending disruptions, while investment driven by AI showed strong performance. More notably, the growth rate of non-AI and residential investments has begun to bottom out, indicating that the recovery of investment activity is spreading from AI-specific to broader real sectors. The February S&P Manufacturing PMI data also supports this: Europe exceeded expectations across the board, with Germany returning above the growth/decline line after more than three years and reaching new highs; the US remained in expansion territory, with business outlook expectations rising to over a year high. Signals of global manufacturing recovery are accumulating. On the other hand, on Friday, the US Supreme Court ruled that Trump’s tariffs under the IEEPA were illegal. Without considering offsetting measures like alternative tariffs, this could lead to a decline in effective tax rates, easing domestic inflation pressures and supporting global export recovery. Looking ahead, the main inflation suppression pressure in the US is shifting from the Federal Reserve to more sectors, making the Fed’s rate cut path potentially smoother, providing a clearer macro backdrop for the recovery of the global manufacturing cycle. For investors, rather than focusing on the complex question of “who will ultimately win” in the tech chain, it is more reliable to focus on the more certain mainline of global manufacturing cycle recovery. Of course, the Trump administration still has other tools, and recent announcements of tariffs under Section 122 and trade investigations suggest tariffs will still be disruptive, but the upper limit of their impact on asset prices has been seen.

3. Commodities: From Excessive Financial Trading to Industry Pricing

Recently, under multiple macro and industry shocks, prices of industrial and precious metals, represented by copper, have experienced high-level volatility and weakening. The core reason is that the rapid price increases previously incorporated significant financial premiums, and macro and industry event catalysts tend to amplify price fluctuations through expectations and position rebalancing. Before the holiday, Trump proposed to reduce tariffs on some steel and aluminum products, combined with recent profit-taking doubts in AI trading and rising debt financing concerns, which temporarily suppressed industrial metal prices. The asset allocation-driven speculative crowded trades have largely ended, and price signals are expected to return to real industry supply and demand fundamentals. Looking ahead: (1) Under the backdrop of rising resource nationalism, geopolitical premiums for industrial metals persist, and tail risks from supply disruptions are unlikely to dissipate in the short term; higher acceptable inventories remain a long-term trend. (2) On the demand side, real investments by tech giants in AI have not slowed; the Big 7’s capital expenditure guidance for 2026 remains significantly above market expectations. Meanwhile, signals from the global traditional cycle and emerging market reinvestment are more evident, potentially forming new demand support. Historical experience shows that current copper-to-gold and aluminum-to-gold ratios, compared to historical levels at similar manufacturing PMI, are still low, implying metals may have higher upside resilience during an upturn in manufacturing. For gold, recent fluctuations caused by Trump’s appointment of Waller as Fed Chair have eased, with some correction. Currently, we believe the most significant retracement phase has passed. The US’s shift from monetary policy to a combination of government tools to suppress inflation is positive for commodities including gold. Additionally, the Supreme Court ruling on tariffs re-focuses attention on US fiscal and debt issues. Even if Trump uses other tariff tools later, the potential for tariff refunds and tax cut demands suggests US debt sustainability issues will remain challenging in the short term. After volatility declines further, it will be an opportune moment for rebalancing funds to re-affirm higher central levels.

4. Key Theme: Global Physical Assets vs. Chinese Assets

The core of market style rebalancing is never about whether AI is a bubble but about how AI’s macro impact, combined with monetary and major country policies, is changing the main contradictions. Shortages have shifted: investment activity is spreading from the previous single AI focus to broader real sectors; the relatively smooth US rate cut path also creates a favorable environment for the recovery of the global manufacturing cycle. During this process, China’s asset capacity value is likely to be re-priced, and capital inflows will promote internal consumption and inflation cycles. For commodities, after the previous high volatility, industry pricing will be more driven by real demand than monetary factors; gold, as a risk hedge, is expected to provide stronger protection as US debt sustainability issues re-emerge. Specific allocation suggestions include: (1) Reassessing physical assets from liquidity and dollar credit to industry low inventories and demand stabilization: copper, aluminum, tin, crude oil and shipping, rare earths, gold; (2) China’s export chain with global comparative advantage and cycle bottom confirmed—power grid equipment, energy storage, engineering machinery, wafer manufacturing, and domestically bottoming-out sectors like petrochemicals, dyeing, coal chemicals, pesticides, polyurethane, titanium dioxide; (3) Capitalizing on capital inflows, easing of balance sheet reduction, and inbound personnel trends to boost consumption—airlines, duty-free, hotels, food and beverages; (4) Benefiting from market expansion and bottoming long-term asset returns in non-bank financials.

5. Risk Warnings

Domestic economic recovery below expectations: If future domestic data weaken more than expected, the assumptions about corporate capital return stabilization may no longer hold.

Overseas economic downturn: If overseas economies decline sharply, the global manufacturing resonance recovery may pause, and demand for physical assets could slow.

Source: Yiling Strategy Research

Risk Disclaimer and Terms

Market risks exist; investment should be cautious. This article does not constitute personal investment advice and does not consider individual user’s specific investment goals, financial situation, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their circumstances. Investment is at their own risk.