We maintain a positive outlook on the return prospects for AI assets and suggest using asset allocation to cope with recent market volatility, effectively "buying insurance" for AI exposure.
Beyond defensive assets such as cash, bonds, and high-dividend stocks, the dollar-depreciation trade also helps hedge AI asset risk, and increasing gold allocations may be an effective strategy for this trade.
From the AI trade to the "AI dollar," the greenback becomes the dividing line in global stock market divergence
Against the backdrop of a restructuring international monetary order, we believe "de-dollarization" remains the major trend, and the dollar faces long-term depreciation pressure ("Is De-dollarization Over?").
However, since 2026, the dollar has been temporarily strong. Aside from inflation pressure triggered by geopolitical conflicts, the AI rally may provide key support.
On one hand, cross-border transactions in the AI supply chain—such as advanced chips, cloud services, and computing power—are largely settled in dollars, and industry expansion may increase dollar demand in stages, creating a so-called "AI dollar" effect.
On the other hand, AI investment strengthens the growth momentum of related economies, especially the United States, where nearly 30% of the projected 2026 real GDP increment is expected to come from AI.
Economic resilience creates conditions for the Federal Reserve to raise rates, and rising U.S. Treasury yields push the dollar higher.
But for economies that benefit less from AI, the tightening of external financing conditions and capital outflow pressure brought by a stronger dollar can instead drag on their economies and market performance.
Under these mechanisms, the dollar has become the dividing line in divergent global stock market performance during the AI revolution: since 2026, the U.S., Japanese, and South Korean stock markets—deeply involved in the AI supply chain—have been positively correlated with the dollar, while the Indian stock market and the Hang Seng Index, which benefit relatively less from AI, have been negatively correlated with the dollar.
Chart 1: Since 2026, the Nikkei 225 has been positively correlated with the dollar.
Source: Wind, CICC Research Department
Chart 2: Since 2026, South Korea's KOSPI has been positively correlated with the dollar.
Source: Wind, CICC Research Department
Chart 3: Since 2026, the Hang Seng Index has been negatively correlated with the dollar.
Source: Wind, CICC Research Department
Chart 4: Since 2026, the Indian stock market has been negatively correlated with the dollar.
Source: Wind, CICC Research Department
Chart 5: Correlation between the dollar index and major assets since 2026: the dollar has become the "dividing line" in global stock market divergence.
Note: Asset data as of October 8.
Source: Wind, CICC Research Department
AI trades are becoming more volatile; beyond adding defensive assets, the dollar-depreciation trade can also serve as a hedge
Although the AI revolution is still in its early stages, the market has begun to worry about slowing growth at leading players and whether future returns can cover current large-scale investment.
The market expects the year-on-year growth rate of capital expenditure by the U.S. "Magnificent Seven" AI companies to slow from about 90% in 2026 to 36% in 2027, and uncertainty over investment returns is also intensifying volatility in AI assets.
Chart 6: The market expects AI capital expenditure to keep growing in 2027, but at a markedly slower pace.
Source: Bloomberg, CICC Research Department
Against this backdrop, increasing allocations to defensive assets such as cash, Chinese bonds, and high-dividend stocks is reasonable.
Beyond that, based on the analysis above, a cooling AI trade may weaken the relative growth advantage of the United States and dollar demand, and the dollar-depreciation trade is also expected to hedge the adjustment pressure on AI assets.
Another advantage of the dollar-depreciation trade is that its profit scenarios are not limited to a weakening AI rally: if easing U.S.-Iran tensions push oil prices lower, or if U.S. inflation improves markedly and prompts the Federal Reserve to shift toward rate cuts, AI assets would benefit from improved liquidity and the dollar-depreciation trade would benefit as well—in which case AI stocks could also rise in tandem.
Therefore, compared with simply reducing AI holdings, positioning for dollar depreciation can both preserve upside exposure to AI and provide portfolio protection across multiple scenarios.
The main risk to this hedging logic is a dollar liquidity crisis.
If a sharp AI correction triggers concentrated global asset selling and investors rush to cash out and obtain dollar cash, the dollar may strengthen and move inversely to stocks, rendering the hedge ineffective.
But the current AI correction is mainly reflected in risk-appetite decline and asset reallocation driven by concerns over investment returns, and has not yet evolved into a disorderly liquidity shock; the dollar and tech stocks are more likely to be positively correlated.
During the recent correction in U.S. tech stocks, the dollar index also fell back from its October 14 high, consistent with this judgment.
The above analysis mainly focuses on the short-term relationship between exchange rates and stocks; over a longer horizon, even if the AI revolution succeeds, stock gains may not necessarily be accompanied by dollar appreciation, because the "reverse Balassa-Samuelson effect" brings real exchange rate depreciation pressure (see "The 'Reverse Balassa-Samuelson Effect' Under the AI Shock").
Gold is an effective tool for positioning for dollar depreciation, and we recommend increasing allocations
The most direct way to position for dollar depreciation is to short the dollar, but foreign exchange trading faces many restrictions, and increasing gold allocations may be a more convenient strategy expression.
In theory, as an alternative asset to the dollar system, gold has a fundamental negative correlation with the dollar, but because gold prices are also affected by multiple factors such as interest rates, inflation, and safe-haven demand, this relationship has not always been stable historically.
But entering 2026, the negative correlation between gold and the dollar has strengthened markedly, with the correlation rising to -81.2%.
Dollar and gold have become two sides of the same coin, making higher gold allocations an effective tool for the dollar-depreciation trade.
Chart 7: Before 2026, the correlation between gold and the dollar was not stable.
Source: Wind, World Gold Council, CICC Research Department
Chart 8: Since 2026, the negative correlation between gold and the dollar has strengthened markedly, with a correlation coefficient as high as -81.2%.
Source: Wind, World Gold Council, CICC Research Department
By contrast, the impact of oil prices and U.S. Treasury yields on gold is more of a阶段性 disturbance: neither the sharp rises and falls in oil prices during the year consistently dominated gold price trends, nor did rising U.S. Treasury yields consistently suppress gold performance.
Chart 9: The oil price decline in May-June did not benefit gold; the oil price surge in August did not suppress gold.
Source: Wind, World Gold Council, CICC Research Department
Chart 10: After July, U.S. Treasury yields accelerated upward, but this did not prevent gold from rising in August.
Source: Wind, World Gold Council, CICC Research Department
Besides gold, U.S. Treasuries are also a potential choice for positioning for dollar depreciation, but the win rate may be lower than for gold: if dollar depreciation stems from falling inflation and Fed rate cuts, both gold and U.S. Treasuries may benefit; if dollar depreciation stems from rising U.S. debt risk or shaken dollar credit, gold may benefit from demand for alternative assets, while U.S. Treasuries may fall due to rising term premiums.
A historical review also supports this judgment.
We reviewed all 91 dollar decline periods since 2000 that lasted at least 14 days; gold rose 84 times, a win rate of 92.3%, with a median interval return of 5.46%; over the same periods, 2-year and 10-year U.S. Treasury yields fell 68.1% and 64.8% of the time, respectively.
Chart 11: During dollar index declines since 2000, gold's win rate was higher than that of other major asset classes.
Source: Wind, CICC Research Department
In summary, we recommend that, in addition to increasing allocations to high-dividend stocks, cash, and Chinese bonds, investors add gold exposure to position for the dollar-depreciation trade and hedge AI asset risk.
The allocation appeal of U.S. Treasuries may also gradually improve, and we suggest keeping a close watch.
Source of this article: CICC Point
Comments