From a global perspective in 2026, the Federal Reserve is likely to continue its interest rate cutting cycle, with at least two or more rate reductions anticipated. This is expected to lead to a further decline in the US dollar index and increase the risk of a correction in US stocks. The series of actions taken by the Trump administration after taking office have significantly impacted the international situation, driving up market risk aversion, and recently leading to a scenario of a "triple blow" for US Treasuries.
The US dollar index has been on a sustained decline, recently dropping from around 110 to 97. This depreciation reflects both a decline in investor confidence in the dollar and heightened risk aversion, prompting some capital to sell dollar-denominated assets and reallocate into precious metals like gold and silver.
In the "Ten Predictions for 2026" released at the end of last year, I explicitly stated that persistent dollar oversupply and the US government's mounting debt would sustain gold's long-term upward trend. Over the long run, the increasing supply of dollars naturally provides a fundamental basis for the rise in the dollar-denominated price of gold.
The rise in international gold prices is intrinsically linked to de-dollarization. Central banks of many countries are selling US Treasuries and increasing their holdings of physical gold to boost their national gold reserves and enhance the "gold content" of their own currencies. The People's Bank of China has been increasing its physical gold holdings for 14 consecutive months, which is conducive to raising the Renminbi's "gold content," promoting its internationalization, and enhancing its global status and reputation.
While participating in the "Future of the US Dollar and the Global Monetary System" forum at the China Chief Economists Forum Annual Meeting in Shanghai recently, I pointed out that the US dollar's share in international trade settlements will gradually diminish. Although this process will be lengthy, the trend is established, with more countries opting for diversified reserve holdings rather than complete reliance on the US dollar.
De-dollarization is a major trend. The frequent use of the dollar's international status by the US to sanction other countries has objectively led to doubts about dollar credibility. More importantly, the US government is deeply indebted: its debt has soared to $38 trillion, with annual interest payments alone exceeding $1 trillion, accounting for over 20% of the US government's fiscal revenue.
Following his inauguration, President Trump enacted the "Big and Beautiful Act," which reduces tax burdens for the wealthy, potentially adding an extra $1 trillion to US debt over the next decade. Concurrently, US military expenditure for 2026 has been raised to $1.5 trillion. These measures further elevate the US government's debt level.
This is reflected in the market through rising yields on US 10-year Treasury notes. Textbooks often refer to the US 10-year yield as the risk-free rate, traditionally assuming US debt cannot default. However, the current yield of 4.5% clearly incorporates a significant risk premium. In contrast, China's 10-year government bond yield is approximately 1.6%.
The global landscape is undergoing significant changes. President Trump bypasses international law, acting more on personal preference, promoting a law-of-the-jungle approach, and emphasizing so-called "demonstrations of American strength." Yet, such actions increasingly signal the decline of US hegemony: the more aggressive the posture, the more it reflects anxiety over the erosion of its dominant position.
For instance, the "invasion of Venezuela" on January 3rd, where President Maduro and his wife were captured and brought to trial in New York, completely disregards international law and also demonstrates a scramble for resources. Venezuela possesses the world's largest oil reserves, consisting of heavy crude oil that can be processed into diesel and asphalt, making it a crucial strategic resource.
Beyond crude oil, Trump engaged in large-scale global copper acquisitions last year, with US stockpiles reportedly reaching 400,000 metric tons. This is a significant factor driving the rise in international copper prices. Data center construction and new energy vehicles consume vast amounts of copper, and US stockpiling pushes prices higher, also impacting China's manufacturing sector. Reports suggest some air conditioner manufacturers are considering replacing copper tubes with aluminum tubes to reduce costs.
Domestically, China achieved its 5% GDP growth target set at the beginning of last year. However, the growth rate of total retail sales of consumer goods declined, falling to 0.9% year-on-year in December. With zero CPI growth and negative PPI growth last year, the primary challenge for economic growth remains insufficient domestic demand, making boosting domestic demand a key policy focus. The Central Economic Work Conference explicitly identified expanding domestic demand as a crucial lever: on one hand, increasing household income and stimulating consumption; on the other, intensifying investment efforts, and promoting anti-involution and capacity reduction in traditional industries.
2026 marks the beginning of the 15th Five-Year Plan. As the plan's formulation progresses and related policy directions become clearer, key supported sectors will continue to focus on technological innovation, including humanoid robots, chips and semiconductors, computing power and algorithms, controllable nuclear fusion, commercial aerospace, and quantum technology—areas that have performed well in recent years. Technology stocks are likely to remain a significant sector in 2026, as the underlying macro logic remains unchanged.
The Tang dynasty poet Liu Yuxi's lines, "A thousand sails pass by the sunken ship; ten thousand saplings thrive ahead of the withered tree," aptly describe the current divergence: viewing traditional industries like real estate invites pessimism, while observing technological innovation reveals new vitality. The capital market is a barometer of the economy; as the economy transforms, so do the opportunities within the capital market.
The market performance in 2026 may not be as extremely bifurcated as in 2025, where tech stocks almost singularly dominated, but technology stocks will still be a crucial direction. As the market trend deepens and the wealth effect strengthens, the transfer of household savings into the capital market may accelerate. Statistics indicate that deposits totaling up to 50 trillion yuan will mature this year. Having enjoyed interest rates around 3%, renewal may only offer about 1%, forcing depositors to choose: continue saving or seek higher-return assets.
Some risk-averse investors may opt for deposits, bonds, bond funds, bank wealth management products, or other fixed-income assets. Conversely, encouraged by the slow-burn, long-term bull market and its wealth effect, other investors may enter the market by purchasing stocks or funds. This influx is a key driving force for the sustainability of the market trend.
Current household deposits in China amount to a massive 166 trillion yuan, having increased by approximately 60 trillion yuan over the past five years. Whereas previous large-scale shifts in household savings primarily flowed into the property market, they are now gradually turning towards the capital market. Once the stock market surpasses the 4000-point mark and a bull market is firmly established, the pace of this transfer could accelerate further.
Last year, over 27 million new stock trading accounts were opened, bringing the cumulative total to 400 million accounts. Fund accounts reached 700 million. This slow-burn, long-term bull market has the potential to benefit hundreds of millions of households, increasing total household assets and partially offsetting the wealth shrinkage effect caused by falling property prices in recent years. If the trend persists for years, its stimulating effect on consumption will become more pronounced.
This bull market carries three historical missions: First, to boost consumption through market gains; Second, to stabilize the property market, as investors who profit in the capital market may increase demand for home purchases; Third, to support the development of more technological innovation enterprises, fostering more unicorns and giants, thereby driving economic transformation, finding a second growth curve, competing for advantage with the US during the Fourth Technological Revolution, and generating greater productive forces.
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