Guojin Strategy: China is the HALO, and physical assets are the Ark

【Report Highlights】We have long emphasized the importance of physical assets, which are now gaining attention from global investors due to various catalysts. As the world faces technological challenges to industry order and regional conflicts threaten globalization, physical assets that were forgotten during periods of order and prosperity will become systemically important. Chinese assets, being closest to tangible production attributes globally, may reveal to investors that the sought-after non-disruptible HALO assets are widely distributed within the Chinese market.

1. The “HALO” Concept: A Calm Perspective on AI

This week, Nvidia’s earnings exceeded expectations, but its stock price plummeted, continuing the divergence between EPS and stock price since November last year, indicating ongoing market concerns about AI disruption. This phenomenon may be similar to the weakening of domestic new energy assets in 2022: at that time, domestic new energy capital expenditure was still rising and the sector was booming, but overall ROE in A-shares declined, with more companies transforming into new energy, and worries about supply-side deterioration led the capital market to devalue the prosperity of related assets, instead pricing in stable energy assets (coal, thermal power) amid industry conflicts. Similar situations are emerging in the US, where tech giants continue increasing capital expenditure, but small and medium enterprises’ profitability deteriorates, and AI has not boosted downstream revenues but mainly reduced costs for large firms and market share. This prevents the market from valuing the entire industry chain based on application revenue growth like during the tech bubble, though corporate capital expenditure persists. Investors are shifting focus to infrastructure and resource sectors driven by AI, while also worrying about AI’s negative impact on high-value-added and light-asset industries. Meanwhile, the “HALO” concept suggests that fields less replaceable by AI are safe havens. Since the beginning of this year, US heavy-asset portfolios have outperformed light-asset ones, with energy, materials, industrials, and utilities sectors showing significant outperformance in Q4 2025. Assets benefiting from AI demand in these sectors are naturally more resilient.

2. HALO: Chinese Assets

Compared to US stocks, A-shares are concentrated in industries like mining and manufacturing that are less susceptible to AI disruption. From an industry-neutral perspective, most A-share listed companies have a higher proportion of tangible assets relative to total assets than their US counterparts. Chinese companies are relatively better equipped to resist AI’s potential impact. Looking at value added across all sectors, China’s manufacturing and materials sectors contribute a higher share than other major developed economies. Global investors may find that the non-disruptible HALO assets they seek are widely present in China. The productive capacity of Chinese assets is irreplaceable; the long-held view that “productivity equals wealth” is gradually becoming reality. The revaluation of Chinese manufacturing assets has begun, with capital inflows and domestic demand recovery underway.

3. Increased Attention from Overseas Governments on Resource Commodities

The US Strategic Petroleum Reserve plan and Zimbabwe’s suspension of lithium exports indicate rising overseas government focus on strategic resources. Although US inventories of copper, for example, are rising rapidly, historically, the inventory-to-annual consumption ratio still has room to grow—especially considering that AI and manufacturing recovery will increase the denominator. Three notable features are: first, rising government reserve demand in the US; second, resource-exporting countries exert significant control over key minerals, and policies like higher taxes or export restrictions can disrupt supply and push prices higher; third, resource-rich countries aim to develop by extending downstream industries, leveraging long-term advantages like demographic dividends and resource endowments, combined with easing monetary cycles, potentially attracting capital to emerging markets, benefiting domestic capital goods exports.

4. Middle East Tensions and Oil Prices: A $90 per Barrel Price Needed to Reverse US Inflation Downtrend

Following US-Israel strikes on Iran, short-term oil price volatility is likely, and oil prices’ impact on US inflation warrants attention. Over the past three years, the marginal effect of oil price changes on US CPI has weakened due to rising service inflation, lower energy component weights, and the difficulty of transmitting upstream price changes downstream amid AI’s impact on employment. Our estimates show that a 1% monthly increase in oil prices marginally raises US CPI year-over-year by about 0.14%. If oil prices reach around $90 per barrel by year-end, there is a high probability that US CPI will turn upward, indicating that the previous disruptions to rate cuts and manufacturing cycles remain limited.

5. China as the HALO, Physical Assets as the Ark

We have long called for market attention to physical assets, which are now gaining momentum through various catalysts and entering the eyes of global investors. In a world facing technological challenges to industry order and regional conflicts threatening globalization, physical assets that were forgotten during prosperous times will become systemically important. Chinese assets, being closest to tangible production, are undergoing revaluation. We recommend: first, assets less replaceable by AI and benefiting from AI development and increased overseas resource focus—copper, aluminum, tin, crude oil, shipping, rare earths, gold; second, Chinese export chains with global comparative advantages at cycle bottoms—power grid equipment, energy storage, engineering machinery, wafer manufacturing, and domestically bottomed manufacturing sectors—petrochemicals, dyeing, coal chemicals, pesticides, polyurethane, titanium dioxide; third, capitalizing on capital inflows, easing balance sheet pressures, and rising domestic consumption—aviation, duty-free, hotels, food and beverages; fourth, benefiting from market expansion and bottomed long-term asset returns in non-bank financials.

Risk Warning: Domestic economic recovery below expectations; significant overseas economic downturn.

(Source: Guojin Securities)