1. The Overseas Dilemma: Investment vs. Consumption, Power vs. Computing Global asset price volatility intensified this week as risk appetite declined again. Although the U.S. government has ended its longest-ever shutdown, delayed key economic data disclosures have left markets in a "data vacuum," obscuring the true state of the U.S. economy. Meanwhile, hawkish remarks from Federal Reserve officials have left December rate-cut expectations at a coin-flip probability, with Bloomberg data showing an uptick in implied policy rates via federal funds futures. Risk assets remain precarious—global financial assets relative to GDP sit at historically high levels (beyond two standard deviations), making them vulnerable to sharp corrections if fundamentals shift.
The market’s deeper concerns center on two issues: First, skepticism mounts over AI’s value proposition. Massive AI investments face scrutiny over whether returns will justify costs. This week, AI data center operator CoreWeave slashed capital expenditures despite strong revenue growth, triggering a stock decline. The cutback stemmed from delayed spending recognition until 2026, compounded by backlog surges and delivery delays due to lagging third-party data center construction. While demand isn’t the issue, AI infrastructure firms’ high-leverage models hinge on AI productivity covering financing costs—yet computing demand growth is constrained by hardware and power supply bottlenecks. With global supply chains (especially electricity) strained, similar delays may emerge across AI data center operators.
Second, diverging performances between U.S. consumer stocks and the S&P 500 reflect recession fears. The U.S. economy shows a K-shaped split: booming AI investment contrasts with weakening low-end consumption ("strong investment, weak consumption"). AI-related investments (6%+ of real GDP) drove 1.4ppt of GDP growth in H1 2025, outpacing the 70%-weighted private consumption’s 1.1ppt contribution. While "Mag7" tech giants’ robust capex (correlating tightly with AI investment growth) bolsters economic resilience, AI-driven layoffs (e.g., Microsoft, Amazon, Google) and high-interest pressures are denting middle/low-income consumers’ spending—evident in S&P 500 consumer sector earnings underperformance since Q2.
However, with global tech giants still ramping up capex unabated, declaring a U.S. recession based solely on weak consumer earnings seems premature. This "investment strong, consumption weak" dynamic mirrors China’s 2022-2024 phase: manufacturing investment held firm amid property sector declines, supporting GDP. Notably, global power/grid investments surged post-2021 amid electricity shortages—a potential template as power constraints now threaten AI growth. The critical question: Will power shortages throttle computing, or will computing demand ignite a power investment boom?
A-shares reflect this rebalancing: As U.S. tech wobbles, China’s TMT sector extends declines, while lagging consumer stocks rebound. TMT’s slump spilled into power equipment late-week, whereas undervalued cyclical consumer plays (priced for pessimism) gained on rotation flows.
2. China’s Domestic Demand: The Portfolio Stabilizer Recent data shows China’s retail sales growth slowing further due to high 2024 baselines and fading subsidy policies. Yet structurally, demand is improving: "unsubsidized" sectors (e.g., food, apparel, daily goods, jewelry) are outperforming subsidized ones (e.g., autos, appliances), likely buoyed by Singles’ Day promotions.
Amid global uncertainty, China’s demand recovery anchors resilience. Two scenarios loom: (1) Exporters’ pent-up FX conversions (from years of strong exports) are reversing—September’s bank settlement rates exceeded 5-year averages, suggesting rising RMB asset allocations. Fed rate cuts could sustain export momentum, fueling further conversions. Historically, this lifts domestic prices and consumption, making consumer leaders a potential alpha source. (2) Even if global recession hits, past capital outflows (2022-2024’s widening financial account deficits) may accelerate FX repatriation, sustaining domestic demand’s defensive appeal.
3. Sino-U.S. Mirror: Rebalancing Styles As AI accelerates, the U.S. mirrors China’s 2022-2024 "investment up, consumption down" split. While power assets remain a global theme, China’s export-consumption loop revival could flip its weak consumption script.
Recommendations: - Overseas rate-cut beneficiaries: Power-starved commodity plays (copper, aluminum, lithium, oil, coal), rebounding industrials (chemicals, steel), and tanker shipping. - China’s demand rebound: F&B, airlines, apparel. - "Shovel sellers": Capital goods (machinery, power grid gear, heavy trucks).
This week, we add textiles/apparel to picks, citing low valuations and cyclical rotation potential. The sector’s improving domestic/export metrics align with broader demand recovery trends.
Risks: Markets are inherently volatile. This analysis isn’t personalized advice—investors should assess suitability independently.