Editor's Note The year 2026 marks the beginning of China's 15th Five-Year Plan period, a time when markets are actively seeking new directions. Amidst evolving macroeconomic conditions and shifting industrial structures, investors must look beyond short-term volatility to identify medium- to long-term trends. This task, while challenging, is undoubtedly worthwhile. To this end, CITIC-Prudential Fund presents the "2026 Outlook" series, sharing our research and insights across eight domains: macroeconomics, fixed income, fixed income plus, equities, commodities, dividends, cycles, and technology. Our objective is not to predict market movements but to clarify underlying logic; we do not offer definitive answers but provide analytical perspectives. We hope this content serves as a valuable reference for your investment decision-making process. This eight-part series will be released sequentially. Thank you for your attention.
The global financial markets in 2025 witnessed a quiet yet significant shift in consensus. On one hand, the U.S. Federal Reserve completed its third rate cut of the year in December, lowering the target range to 3.5%-3.75%. However, behind this seemingly consistent easing cycle lies a rare divergence in monetary policy among major developed economies' central banks: the European Central Bank has entered an "extended observation period," while the Bank of Japan, as expected, raised rates by 25 basis points to a 30-year high, a move widely seen as a crucial step towards policy normalization. Should the Fed continue its solo easing path, it could fundamentally reshape the underlying logic of global capital flows. On the other hand, a thought-provoking data comparison is gaining traction: the total value of global GDP output in 2024 was equivalent to just 1.32 million tons of gold, a figure remarkably close to the 1.34 million tons recorded in 1975 (Data sources: World Bank and public gold market data. Data as of December 31, 2024). Nearly half a century of economic growth and monetary expansion appears, when measured against this ancient standard, as a grand "monetary illusion."
Against this dual narrative, capital is voting with its feet. Central banks worldwide continue to accumulate gold, driving its price to historic highs. Meanwhile, astute institutional investors are turning their attention to the broader commodity complex, viewing it as a "ballast" against currency credibility fluctuations and "stagflation-like" risks. The challenge for the asset management industry thus becomes clear: how to construct a defensive line for investors that can navigate cyclical uncertainties and anchor true value? Our answer: commodities are undergoing a paradigm shift from "cyclically volatile assets" to "structural strategic assets." This necessitates a systematic overhaul of investment logic.
I. Reframing the Approach: Strategic Allocation in an Inflationary Cycle - A Three-Tiered Framework for Precision Regarding the strategic role of commodity allocation, CITIC-Prudential Fund proposes a "Why-When-How" three-tier analytical framework:
Why (Essential Nature): Serving as a "Ballast" and "Hedge" in Portfolios Reviewing the past four decades across eight economic cycles reveals that commodities have frequently delivered returns superior to those of U.S. stocks and bonds. Their strategic value further lies in their non-homogeneous risk-return profile: during periods of systemic equity market drawdowns, commodity assets have repeatedly served as critical sources of return or volatility buffers. In the current environment of rising stock-bond correlation and diminished efficacy of traditional allocations, this hedging characteristic is not merely an embellishment but potentially a necessity.
When (Strategic Window): A Long-Term Perspective Under the Inflation Narrative Historical data points to a clear conclusion: significant commodity outperformance has almost invariably coincided with high or rising inflation periods. Presently, we stand at the potential onset of a sustained "Great Inflation" narrative: global supply chain restructuring elevates costs, major economies persist with "expansionary fiscal" policies, and the rate-cutting cycle combined with potential tariff barriers creates a monetary and trade environment conducive to inflation. The persistence of inflation opens a strategic time window for commodity allocation.
How (Dynamic Implementation): Precision Management Across Macro, Meso, and Micro Levels Macro-Level Quadrant Identification: According to the classic Investment Clock framework, commodities typically perform well during stagflation periods. The current global environment, characterized by "slowing growth momentum alongside persistent inflationary pressures," represents a favorable macro quadrant for their strategic allocation. Meso-Level Rotation Capture: Avoid over-concentration on single commodities; instead, capture rotation opportunities driven by common market logics. For instance, expectations of declining global interest rates initially favor gold, subsequently potentially lowering financing costs for industrial metals; meanwhile, "re-industrialization" and tariff narratives simultaneously boost demand premiums for crude oil and certain strategic metals. Micro-Level Selection: Implement differentiated strategies—focus on monetary credit reassessment for gold; analyze the fragile supply-demand balance under geopolitical tensions for crude oil; and verify the substantive strength of global manufacturing inventory cycles and green transition demand for industrial metals.
II. Gold: Credit "Repricing" Beyond the Cycle The traditional analytical framework for gold—real interest rates—has faced challenges in the current cycle, yet this precisely reveals a deeper transformation. For U.S. dollar-based investors, the allocation cycle for gold assets still aligns with the interest rate cycle. The real change lies in the historic shift in gold's buyer profile. The driving force has transitioned from Wall Street trading desks to central bank reserve managers globally. Underpinning this shift is a profound reassessment of the dollar-centric single credit currency system. The U.S. government's debt-to-GDP ratio has surged from approximately 62% in 2004 to 119% in 2024, doubling over two decades (Data source: IMF. Data as of December 31, 2024). Concurrent downgrades of its sovereign credit rating by international agencies highlight emerging cracks in dollar credibility. In this context, gold's perceived attribute as an "ultimate credit beyond sovereigns" is being rediscovered. The People's Bank of China's 14 consecutive months of gold purchases (Data source: People's Bank of China. Data as of December 31, 2025) are merely one example of a global trend among non-U.S. central banks to reduce dollar dependency and diversify reserve assets. This trend is likely highly structural and long-lasting. It suggests gold is potentially transforming from a cyclically volatile commodity into a "quasi-monetary asset" hedging against deep-seated risks within the global monetary system. Its price support now stems not only from Fed rate cut expectations but also from systemic demand for safe assets in an increasingly multipolar world.
III. Commodity Rotation: The Art of Capturing Macroeconomic Contradictions However, relying solely on gold is insufficient for building a complete defensive system. The true challenge lies in dynamically allocating across a commodity market characterized by simultaneous divergence and turbulence. In 2025, "volatility" and "divergence" were absolute themes: gold led gains, while energy and some new energy metals faced persistent pressure. This demands that fund managers extend their vision beyond single commodities to grasp the complex reflections of the macroeconomic cycle across different commodities. CITIC-Prudential Fund has developed a "crude oil-gold" dual-driver analytical framework. Its core originates from the classic Investment Clock but is imbued with contemporary insights: Crude oil, the lifeblood of modern industry, exhibits price elasticity closely tied to global aggregate demand, especially during boom cycles. Gold, possessing monetary and bond-like qualities, shines during periods dominated by recession, stagflation, or risk aversion. The appeal of this framework lies in its dynamic adaptability. For example, when "re-inflation" logic (driven by fiscal expansion) dominates, crude oil and related energy-chemical chains may react first; whereas when economic data weakens or geopolitical risks surge, "safe-haven" logic takes over, making gold and silver potential harbors for capital. In 2026, the tug-of-war and switching between these two logics may intensify, making active rotation capability a key differentiator.
IV. Active Management: The Key to Creating Certainty in a "High-Volatility" Market Commodity investing is inherently challenging. Its high volatility and complex global pricing mechanisms often leave passive strategies at a disadvantage. Consequently, active management capability becomes a scarce commodity. Our practice demonstrates a viable path: combining top-down macroeconomic cycle positioning with bottom-up analysis of market microstructures. At the macro level, utilizing a monitoring system with over 480 indicators and maintaining research resource sharing with leading global institutions, we strive for objective and comprehensive economic cycle positioning. At the micro level, we conduct in-depth analysis of specific commodities' supply, demand, and inventory fundamentals, quantitatively assessing market sentiment and inherent contradictions to avoid circular reasoning focused on single assets. The strength of this approach is that it does not attempt to precisely predict every short-term inflection point but focuses on identifying the dominant market contradictions and making gradual asset adjustments. For instance, when the core market contradiction is judged to shift from an "inflation narrative" to "recession trading" or "safe-haven demand," the allocation balance naturally tilts accordingly. This allows the fund's net asset value to pursue growth while demonstrating a degree of resilience and continuity.
V. Conclusion: Allocating to Real Assets in a Divergent World We may stand at a historical crossroads: the era of globally synchronized monetary policy is fading, geopolitical structures are accelerating their reorganization, and old relationships between growth and inflation are being challenged. Against this backdrop of macro "great divergence," traditional stock-bond portfolios appear inadequate. Asset allocation now requires the introduction of truly "hard-core" elements—assets intrinsically linked to the real economy, whose value does not depend on the promises of any single government. Therefore, for investors aiming to preserve long-term purchasing power, a key action in 2026 might be to entrust a portion of asset allocation authority to professional expertise capable of understanding and navigating this "repricing." This is not merely about investing in a product but adopting a solution to address monetary credit evolution. Ultimately, all investment involves pricing the future. As traditional pricing coordinates blur, some capital is beginning to use "real" value as a new syntax to write the story of the future. We hope to accompany thoughtful investors like you on this journey.
Note: Mention of any specific stocks/sectors/industries does not constitute any form of recommendation or investment advice, nor does it represent information on fund holdings or trading direction. The above content is solely for illustrating investment perspectives and current market analysis, not as an investment commitment. The fund's investment strategy, allocated sectors, specific investment targets, and proportions may be adjusted within the confines of the fund contract based on market conditions. Risk Disclosure: This material is for informational purposes only. The views expressed are current opinions and do not constitute a prediction of the future or any investment advice, nor are they necessarily a basis for future investment decisions. This material is not intended to provide financial information services or constitute an offer or solicitation to buy or sell any securities or financial products, nor is it investment advice or a recommendation regarding any company, security, or financial product. This material may contain "forward-looking" information not based solely on past data, which may include estimates and forecasts, but there is no guarantee that any predictions will materialize. Readers must exercise their own judgment regarding reliance on the information provided. The above content is not an investment commitment. The fund's investment strategy, allocated sectors, specific investment targets, and proportions may be adjusted within the confines of the fund contract based on market conditions. The fund manager reminds investors of the "buyer beware" principle in fund investments. After making an investment decision, investors bear the risks and consequences arising from fund operation conditions and net asset value changes. Past fund performance is not indicative of future results, and the performance of other funds does not guarantee the performance of this fund. The fund manager is committed to managing and utilizing fund assets with honesty, good faith, diligence, and duty, but the fund does not guarantee profits, minimum returns, or principal safety. Please read the prospectus, key fund information, and fund contract carefully before investing. Funds carry risks; invest with caution.
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