Bank of China's "white paper" looks forward to 2024: China's assets have the highest cost performance in the world

"In the long run, about 90% of investment returns come from successful asset allocation." In the current era of heightened uncertainty, this view has increasingly become the consensus of investors after experiencing the market test in 2023.

Recently, the "2024 Bank of China Personal Finance Global Asset Allocation White Paper" (hereinafter referred to as the "White Paper") was released. The Bank of China began to publish the "White Paper" in 2018, and 2024 will be the sixth consecutive year of publication. In the past five years, Bank of China has used the views of the "White Paper" to guide customers' strategic asset allocation and safeguard the preservation and appreciation of customers' wealth.

Specifically, the "White Paper" reviews and prospects different asset markets in six major chapters, including "Review, Macro, Equity, Bonds, Foreign Exchange, and Commodities", and in the "Allocation Chapter" The 2024 global asset allocation strategy and Bank of China solutions are given in it.

Looking forward to 2024, under the background of the macro theme of "the U.S. dollar interest rate cut cycle has begun, and global assets are ushering in the dawn", various global assets will be analyzed from the dimensions of geographical structure, macro policies, economic growth, valuation levels, liquidity, etc., and the outlook for the next year will be Make research and judgment on the trends of major asset classes. The "White Paper" believes that in 2024 under the fundamentals of "slow global economic recovery and the Federal Reserve starting an interest rate cut cycle", the order of global asset allocation will be equity, gold, commodities, and bonds.

The value of the "White Paper" highlights under a century of changes

The "White Paper" first reviews the global market in 2023. Looking back, in 2023, the century-old changes in the world will accelerate. Inflation in the United States and Europe will peak and fall, the inflection point of U.S. dollar interest rate hikes will appear, and the dawn of assets will appear. Overseas stock markets generally rose, A-shares fell, U.S. debt was at the tail end of the bear market, China Bond's gains converged, crude oil fluctuated and closed down, gold rose unilaterally, the U.S. dollar turned from strong to weak, Africa and the U.S. diverged, and the RMB depreciated slightly.

As a professional in-depth report in the field of asset allocation, in the past five years, Bank of China has used the views of the "White Paper" to guide customers' strategic asset allocation. Looking back, the Bank of China responded proactively with its strategies. Over the past five years, the performance of strategic allocation has been satisfactory, the tactical timing has been in place, and the alpha of strategic allocation and tactical timing has been highlighted.

It is worth mentioning that in the strategy for the third quarter of 2023, the Bank of China proposed to gradually upgrade gold from an allocation asset (alternative asset) to a strategic asset class that is as important as stocks and bonds, that is, gold can be used as a way to earn income. Income assets, not just allocation and hedging, Bank of China recommends that customers can use gold to replace equity investments in stages. After the adjustment, Shanghai Gold rose by 8% while the CSI 300 Index fell by 8.87% during the same period.

This year's "White Paper" continues to conduct a detailed analysis of macro, equity, bond, foreign exchange, and commodity markets. On the macro front, the "White Paper" believes that in 2024, the Federal Reserve's interest rate hikes will end, the interest rate cut cycle will begin, the global liquidity turning point will arrive, and the global economic recovery will be slow, and resonance may exist in the second half of the year. At the same time, China's economy is recovering steadily and moderately, with CPI rising slightly, PPI bottoming out or turning positive, monetary policy is flexible, appropriate, precise and effective, and fiscal policy is appropriately intensified to improve quality and efficiency. The U.S. economy is gradually cooling down and returning to "potential growth", with the possibility of a shallow recession, and the European economy may enter a recession.

It is worth noting that in terms of equity, the "White Paper" believes that China's economy will recover moderately in 2024, corporate profits will increase, stock market fundamentals will improve, the construction of a financial power will lead to the adaptive calibration of stock market positioning, boost investor confidence, and the capital market is expected to be active , the undervalued A-shares have a bright future. In addition, the market is trading in advance of the start of the U.S. dollar interest rate cut cycle. The U.S. stock market has fully priced in its economic "soft landing" and may fall back and correct after starting to cut interest rates; the Eurozone and British economies continue to be sluggish, and the stock market rebound is difficult to sustain; the Japanese economy may emerge from deflation and continue to Recovery, stocks are expected to climb modestly.

In addition, in terms of bonds, the "White Paper" believes that with the downward trend of U.S. bond interest rates, Chinese dollar bonds will usher in a golden period for allocation. China's economy is recovering moderately but its foundation is not solid. Liquidity is relatively loose. There is still room for RRR and interest rate cuts. The interest rate center is expected to continue to move downward. The 10-year government bond yield is expected to fluctuate between 2.45% and 2.75%.

How to allocate major global assets

Under the background of the macro theme of "the U.S. dollar interest rate cut cycle has begun, and global assets are ushering in the dawn", the "White Paper" analyzes various global assets from the dimensions of geopolitical structure, macro policies, economic growth, valuation levels, liquidity, etc., and provides guidance for the coming year. Make research and judgment on the trends of major asset classes. "We believe that in 2024, under the fundamentals of 'slow global economic recovery and the Federal Reserve starting an interest rate cut cycle,' the order of global asset allocation will be equity, gold, commodities, and bonds." The "White Paper" wrote.

Specifically, in terms of equity, the "White Paper" predicts that China's economy will accelerate stability and moderate recovery, continue to deepen high-quality development, and form new productive forces. The overall neutrality of the RMB will be strong, and Chinese assets will have the highest cost performance in the world. The positioning of China's stock market has been recalibrated, and investor confidence is expected to be boosted by continuing to work on the reform of "investment, financing and trading", focusing on improving the quality of listed companies and strengthening investor protection and returns. The Chinese-style valuation system and investment values are gradually taking shape, and the future of China's stock market is bright.

"We advocate the establishment of investment values ​​that wealth is derived from China and invested in China. In global asset allocation, we give priority to Chinese stock markets and overweight Chinese A shares (recommended) and Chinese Hong Kong stocks (recommended). In view of the fact that the Federal Reserve has suspended interest rate hikes three times in a row, When the market starts trading the interest rate cut cycle in advance, U.S. stocks have fully priced in a "soft landing" for the economy. It is recommended to start with a standard allocation to U.S. stocks. After the first interest rate cut begins, reduce holdings on highs and turn to underweight, and then increase holdings back to standard allocations after a sufficient decline. . The European economy continues to be sluggish and the rebound is unsustainable, so it is recommended to underweight. The Japanese economy may emerge from deflation and continue to recover, and the stock market is expected to rise moderately. It is recommended to overweight (recommended). Emerging markets benefit from the easing of global liquidity pressure, and it is recommended to invest moderately to benefit from A country that is restructuring the global industrial and supply chains." The "White Paper" specifically analyzed.

In terms of the bond market, the "White Paper" analyzes that U.S. inflation continues to fall, the Fed's interest rate cut cycle has begun, and the possibility of a shallow economic recession cannot be ruled out. U.S. bonds are in the best investment stage, and it is recommended to continue the overweight position in the fourth quarter of 2023 (recommended). As U.S. bond interest rates trend downward, Chinese dollar bonds are entering a golden period for allocation, and it is recommended to continue the overweight position in the fourth quarter of 2023 (recommended). China's economy is recovering moderately but its foundation is not solid. Liquidity is relatively loose. There is still room for RRR cuts and interest rate cuts. The interest rate center is expected to continue to move downward. The 10-year government bond yield is expected to fluctuate between 2.45% and 2.75%, and it is recommended to be standard.

In terms of precious metals and commodities, the "White Paper" believes that the long-term logic of the geopolitical hedging function and currency hedging (credit ruler role) in the century-old changes continues to be performed, and the long-term allocation value of gold is greater than before. Combined with the rising pattern of gold during the period from the end of U.S. dollar interest rate hikes to the beginning of the interest rate cut cycle (expected decline in U.S. dollar real interest rates), it is recommended to continue to overweight gold (recommended). The tight balance between crude oil supply and demand continues, and it is recommended to be conservative first and then standardize. In addition, the research scope of the 2024 "White Paper" covers industrial metals for the first time. Copper is recommended to be conservative first and then standard. Aluminum oversupply improves and demand is expected to increase, so standard allocation is recommended.

In terms of currency, the U.S. dollar interest rate hike process is over and the economy is gradually entering recession. It is recommended to maintain a low allocation (conservative) during the period of expected easing market transactions, and then increase it to the standard allocation when the opportunity arises. The continued bad economic environment in the UK is difficult to support the currency. It is recommended that the pound continue to be the standard allocation since 2023 and adjust to a low allocation (conservative) when the opportunity arises. Japan's trade deficit has narrowed, the spread between U.S. and Japanese government bonds has narrowed, and the safe-haven attribute is expected to return. It is recommended that the Japanese yen be raised from the standard allocation in 2023 to overweight (recommended). The economic fundamentals of the Eurozone are not as good as those of the United States. In addition, the interest rate cut may be earlier than that of the United States, and the magnitude is comparable to that of the United States. The comparative advantage of monetary policy has weakened. It is recommended to lower the allocation from the standard allocation in 2023 to the underweight (conservative). The fundamentals of the Australian economy are good, and the comparative advantage of monetary policy is still there. The Australian dollar will be at a historical low against the US dollar in 2023 and there is a need for rebound. It is recommended to increase the standard allocation from the standard allocation in 2023 to overweight (recommended). The Canadian dollar remains neutral. China's economy is expected to recover, but exports are weakening due to weakening external demand. The RMB is neutral to strong, and it is recommended to be standard.

"Cognition determines wealth." In the field of wealth management, professional “cognition” determines the service level of financial institutions. Looking forward to the future, Bank of China will continue to use its professional market research and judgment capabilities, powerful resource integration platform, rich series of high-quality products, and scientific asset allocation system to strive to "understand customers" and in accordance with customer security and liquidity requirements. , build a return-maximizing investment portfolio, and help customers "maximize wealth value" through "BOC Investment Strategy"'s full companionship.