China's National Bureau of Statistics today released March inflation data. Both the Consumer Price Index (CPI) and Producer Price Index (PPI) rose during the month. Notably, the PPI ended a 41-month consecutive decline, registering its first increase with a year-on-year rise of 0.5%, reversing from a 0.9% drop in February. The increase in PPI indicates a recovery in industrial product prices, driven partly by imported inflation—escalating Middle East conflicts have pushed up oil prices, which in turn raised industrial goods costs. Additionally, efforts to stimulate consumption and boost demand have also contributed to the PPI increase. The CPI rose 1.0% year-on-year but fell 0.7% month-on-month. A 1.0% CPI increase suggests China's consumer prices are at a mild inflation level, gradually moving towards the government's annual target of 2% CPI growth outlined in the Government Work Report. Mild price increases signal a gradual recovery in demand while helping avert the risk of deflation, which is favorable for stabilizing economic growth and boosting consumer confidence. To stabilize growth, China will implement more proactive and effective macroeconomic policies, driving investment, consumption, and demand to support a recovery in both CPI and PPI. The mild rebound in prices is a key indicator of economic improvement and provides some support to the domestic capital markets.
At the end of last year, I released ten major predictions for 2026, outlining overall expectations for the domestic and global economic landscape and capital markets. I maintain that the U.S. Federal Reserve will continue its current interest rate cutting cycle in 2026, the U.S. dollar index will trend lower overall, and U.S. stocks face the risk of peaking and declining. The first quarter witnessed the U.S.-Iran war, with Israel and the United States jointly engaging Iran, triggering significant volatility in global capital markets. Particularly after Iran blockaded the Strait of Hormuz, a critical chokepoint for global oil and gas transportation, international oil prices surged sharply from around $70 per barrel pre-conflict to over $100 per barrel, even touching $120 at their peak. Rising oil prices reignited global inflation expectations, forcing the Fed to delay its rate-cutting timeline. Should the U.S. and Iran reach a ceasefire through negotiations in April, reopening the Strait of Hormuz, international oil prices would likely fall accordingly, potentially altering the global inflation outlook and allowing the Fed to cut rates in the second half of the year. If no agreement is reached and the conflict persists into the latter half of the year, with the Strait remaining blocked, the impact on global inflation would be more significant, potentially delaying Fed rate cuts until year-end or even next year. The U.S. dollar index has recently rebounded somewhat, as the dollar often serves as a safe-haven asset during wartime. U.S. stocks have experienced some volatility and adjustment, though the decline so far remains modest. Recently, investing legend Warren Buffett noted in an interview that Berkshire Hathaway's cash holdings have reached $350 billion, exceeding its stock portfolio, as a precaution against a significant market downturn after U.S. stocks peak. The current 5%-10% pullback in U.S. stocks is insufficient to attract his investment, as such a decline is not yet compelling. Buffett typically acts during periods of extreme market panic, consistent with his historical approach.
Domestically, I anticipate that stabilizing growth policies will take effect, leading to improved key economic data for China in 2026, with consumption growth recovering and prices gradually rising. The Government Work Report presented during the Two Sessions set this year's GDP growth target at 4.5%-5% and the CPI target at 2%, indicating that macroeconomic policies will be further intensified. More proactive fiscal policy and appropriately accommodative monetary policy will support economic recovery. Therefore, among my ten predictions, I mentioned that China's fiscal policy will continue to exert force in 2026, employing various measures to stimulate investment, boost consumption, and expand domestic demand. The central bank will maintain a supportive monetary policy, keeping interest rates low and liquidity ample. In a low-interest-rate environment, the shift of household savings into the capital market is expected to accelerate, leading to a significant increase in the sales of equity funds. This view has already seen some validation in the first quarter: equity fund sales rebounded noticeably compared to last year, with several new funds achieving initial offering sizes exceeding 5 billion yuan. This trend is partly due to last year's market rally, where funds focused on technology and high-dividend stocks delivered strong performance, attracting household savings into the market via fund purchases. This year, an estimated approximately 50 trillion yuan in time deposits are maturing. The interest rates on these deposits, set three years ago, were around 3%, but now stand at only about 1.2%. Faced with a low-rate environment upon maturity, depositors must choose between continuing with low-yield deposits or investing in higher-return assets like equities. A portion will likely opt for equity funds with higher expected returns, while others may choose fixed-income products like bond funds, depending on individual investor preference.
Regarding the real estate market this year, I expect the adjustment phase to continue. However, properties in core areas of first-tier cities may lead a rebound, with transaction volumes also recovering. The current overarching regulatory policy aims to stabilize housing prices and halt declines; conditions for a sharp price surge are not yet in place. As the golden investment era for real estate concludes, the direction of household savings migration has gradually shifted from the property market to the stock market, a major trend. For those who missed the real estate boom, this transition of savings into the capital market presents an opportunity not to be missed. Investors should seek to capture wealth growth from this slow, long-term bull market. It is important to note that this is not a broad-based bull market but a structural one. Technology stocks remain a primary investment theme, but another segment, including new energy, resource stocks, and energy stocks—termed "HALO assets" (heavy assets, low elimination rate)—are not rendered obsolete in the AI era and can even be considered beneficiaries. If technology stocks represent the direction empowered by AI, then HALO assets serve as the infrastructure for the AI age. Sectors that performed well in the first quarter, such as non-ferrous metals, chemicals, and energy storage, warrant continued attention throughout the year.
The Chinese yuan has continued its appreciation trend, aligning with my previous forecast. Last year, I predicted the yuan would break through 7 against the dollar and appreciate further; the exchange rate has now reached around 6.8, fully realizing this expectation. Yuan appreciation typically attracts accelerated foreign capital inflows into yuan-denominated assets, including A-shares, Hong Kong stocks, and Chinese bonds, potentially drawing increased foreign investment. Driven by both the domestic savings shift and foreign capital inflows, A-shares and Hong Kong stocks, after a quarter of adjustment, are poised for a potential rebound following low-level consolidation in the second quarter. For the full year, A-shares and Hong Kong stocks are expected to maintain a slow, long-term bull trend, with increasing investment opportunities enhancing investor returns.
My assessment of international gold prices in recent years has been validated by market movements. I believe global instability persists, U.S. government debt remains high, and confidence in the U.S. dollar is challenged, supporting a long-term upward trend for gold. Gold breaking above $5,000 or even $10,000 per ounce seems only a matter of time. Over the past few years, gold has surged significantly, already achieving the first target of surpassing $5,000 per ounce. Although recent profit-taking pressure and broad asset price declines due to Middle East conflicts have led some institutions to sell liquid assets like gold for self-preservation, the current dip in gold and silver prices presents a buying opportunity. For allocations to precious metals like gold and silver, investors are advised to adopt a medium- to long-term perspective, avoiding excessive focus on short-term price fluctuations. Long-term holdings in gold and silver primarily hedge against the declining purchasing power of fiat currencies, particularly amid de-dollarization trends. The fundamental logic for gold's long-term appreciation remains intact. For several years, I have recommended a 20% allocation to gold-related assets within investment portfolios, a strategy that continues to appear effective.
Comments