Yang Delong: Short-term Market Volatility and Adjustment, Long-term Slow Bull Logic Unchanged

AI Question · How can a slow and steady bull market stimulate consumption through wealth effects?

Recently, I proposed two main investment themes for this year: technology and resources (non-ferrous metals). As resource-based commodities, non-ferrous metals have experienced significant gains over the past year. Industrial metals like copper, aluminum, and zinc, as well as minor metals such as tungsten, lithium, and cobalt, have all seen notable price increases. The U.S. is also stockpiling strategic materials like copper in large quantities. For example, last year, U.S. actual copper consumption was only 70,000 tons, yet stockpiled up to 400,000 tons. The development of artificial intelligence requires large amounts of copper, data center construction depends heavily on copper wiring (which has second only to silver in electrical conductivity), and new energy vehicles use about four times more copper than traditional fuel vehicles. Therefore, demand for non-ferrous metals remains high.

However, due to previous sharp price increases and escalating Middle East conflicts increasing market risk aversion, investors’ risk appetite has declined. Non-ferrous metals are typical high-elasticity assets; during upward phases, gains are large, and during declines, they are prone to concentrated sell-offs. As commodities, their prices are historically volatile and exhibit significant cyclical patterns. In the short term, the overall non-ferrous metals sector is in a correction phase, with capital shifting toward so-called “HALO assets,” which are heavy-asset, low-elimination-rate sectors such as power, grid equipment, and railways. These traditional blue-chip stocks have low valuations, high dividend yields, are not easily replaced by AI, and are important infrastructure in AI development. Recently, capital flows show a clear trend: outflows from high-weighting sectors like non-ferrous metals and technology, gradually shifting toward low-volatility HALO sectors. International investment banks like Goldman Sachs and Morgan Stanley have also recommended HALO assets.

Many are worried that the slow and steady bull market we’ve worked hard to establish might be interrupted by Middle East conflicts. I believe it won’t. While the conflict does impact the market, it’s not enough to end this bull cycle. The current slow and long bull market is supported by deep fundamentals, including sustained policy support for the capital markets, large-scale transfer of household savings into the market, and China’s technological innovation attracting significant foreign investment into undervalued Chinese assets. These fundamental factors have not fundamentally changed. Therefore, the volatility caused by Middle East conflicts should be viewed as short-term shocks rather than long-term influences.

Currently, we also need to leverage this slow and long bull market to generate wealth effects, enabling a broad base of investors to earn property income through the capital market, thereby boosting consumption and stabilizing the real estate market. Additionally, a stronger capital market will facilitate more tech innovation companies to list on the STAR Market and ChiNext, gaining vital capital support and becoming future industry leaders. After IPOs are relaxed, PE/VC firms will also have exit channels, encouraging further investment in tech innovation companies, creating a virtuous cycle.

Thus, I believe this slow and long bull market carries three historic missions: first, to boost consumption; second, to stabilize the housing market; and third, to vigorously support technological innovation. I see further opportunities in this cycle, but sector rotation will accelerate, increasing investment difficulty. Recently, market rotation has quickened, with valuation shifts between high and low. Previously, sectors like technology and non-ferrous metals, which had large gains and high valuations, have corrected significantly, while undervalued blue chips have rebounded somewhat. This change in market style is normal. Many tech stocks doubled or even tripled last year, with high valuations and profit-taking pressures leading to natural corrections of 10-20%.

Technological innovation is the real beneficiary of China’s economic transformation. The government work report emphasizes support for tech innovation sectors, which are key focus areas in the 14th Five-Year Plan. The plan has been approved, and 2026 marks its start, so these sectors are likely to persist throughout the bull cycle rather than being short-term opportunities. After adjustments, some funds will be selectively allocated.

This year, investing in tech stocks will become more challenging. Last year, sector effects dominated: when the robotics sector rose, related sectors also gained, as investors couldn’t accurately judge which companies would become industry leaders. Now, the market is gradually entering a “stock-picking” phase—companies that secure major orders from Tesla, Yushui Robotics, and others will be favored, potentially soaring, while those unable to secure orders will be discredited and may see their stock prices fall. Next year, performance verification will be key—whether these companies can translate orders into actual revenue growth. Other tech sub-sectors will undergo similar order or performance validation processes.

Demand for non-ferrous metals driven by AI and new energy vehicles, combined with the Federal Reserve’s rate cuts and liquidity easing, forms a medium- to long-term logical framework with no fundamental change. However, profit-taking pressures may lead to short-term adjustments. Many undervalued assets, often called “old stocks,” saw limited gains last year, with some still near 2600 points. Some risk-averse funds are switching between high and low valuation assets, focusing on low-priced traditional blue chips, which is reasonable.

Sector rotation is healthy for a bull market. If one sector continues to outperform while others lag, the bull cannot last. Rotation promotes healthier market operation and longer-lasting bull markets.

This year, the market shows a “new dumbbell” pattern: one end favors high-risk, elastic assets like tech and non-ferrous metals; the other end favors stable-return, low-volatility blue chips with high dividends, shifting out of bank deposits. For risk-averse investors, some quality blue chips are still near 2600 points valuation, which is relatively reasonable. From a long-term allocation perspective, these assets may be attractive with better risk-return ratios, though recent market risks are high. Investing in these requires patience; unlike tech stocks that can surge 30-50%, these may only rise 10-20%. Risk-averse funds might expect annual returns of 10-20%. As more low-risk funds flow in, the sustainability of blue chip gains could further strengthen.

Statistics show that about 50 trillion yuan in fixed-term deposits mature this year, mostly three-year products with interest rates above 3% three years ago. Now, rates have fallen to around 1.2%. Some investors choose to renew at lower rates; others withdraw and invest in bonds or stocks/funds to share in the slow and steady growth. Long-term bank deposits are not conducive to economic growth. Recently, more calls from telemarketers asking about loans indicate excess bank deposits and difficulty in lending, which erodes bank profits. Banks also want to “move” deposits. Some funds may enter the capital market via stocks or funds, becoming incremental market liquidity. The process of household savings shifting into the market has begun, albeit slowly, different from the rapid inflows during major bull markets. This slow “migration” aligns with the characteristics of a slow and long bull market. Therefore, this cycle is supported by sustained capital inflows, with the core feature of “slow” and “long-lasting.”

In a slow and long bull environment, patience is essential. Investors should deeply analyze which industries and companies truly benefit from economic transformation and which may generate excess returns in the future. At this stage, adhering to value investing principles and focusing on fundamentals is especially important. (Views for reference only; investment involves risks. Image source: internet)