According to Zhang Yidong, Executive Committee Member, Chief Economist, and Head of Research at Haitong International, the outlook for overseas markets suggests that in the short term, investors should await a genuine TACO 2.0 scenario and remain cautious until then. In the medium term, the impact of TACO is expected to diminish, while security premiums may persist for an extended period.
The key to a true trend reversal towards risk-on sentiment lies in when the United States takes substantive actions to compromise or de-escalate tensions in the Middle East, rather than relying on inconsistent statements from former President Trump.
Predicting geopolitical developments is challenging; thus, it is more prudent to wait patiently and respond proactively.
In the context of mid-term elections, time is not on Trump's side. Drawing lessons from historical events in March 2020 and April 2025, eventual declines in equity markets and underlying inflation concerns are likely to pressure Trump into taking concrete compromise measures, such as agreeing to a ceasefire or withdrawing troops. Such actions would signal the arrival of a true TACO 2.0 scenario.
Under TACO 2.0, global capital markets are poised for a meaningful rebound. In equities, a resurgence in technology and growth-oriented styles is anticipated. Investors should focus on leading companies with strong technological capabilities in both U.S. and Chinese markets, particularly China's core assets.
Regarding gold, although short-term overselling pressure exists due to profit-taking, the petrodollar dynamic, and recent liquidity shocks, its medium to long-term upward trajectory remains intact. The rationale behind gold's super bull market stems from its role as a hedge against sovereign credit risks and the certainty premium associated with the restructuring of the international order. Gold is increasingly viewed as a strategic stabilizer and the ultimate anchor of credit during this transition.
In the medium term, the risk-on effect driven by TACO will continue to weaken. Conversely, the trend of declining U.S. equity risk premiums observed over the past decade may reverse around 2026.
Long-term, the Iran conflict marks a milestone in the era of international order restructuring. Core assets such as energy, gold, resources, and defense technology are undergoing strategic revaluation.
The recommended investment strategy is to proceed with patience and discipline, avoiding impulsiveness, while seizing the strategic opportunities presented by China's core assets.
Chinese equities exhibit the lowest correlation with U.S. stocks among major global markets. During this period of international order transformation, China's core assets are well-positioned for a sustained bull run.
Currently, Chinese stocks offer attractive valuations relative to their global peers, trading at significant discounts. This valuation gap provides substantial room for catch-up with mainstream international markets. China's core assets are expected to be the primary driver of future market performance.
A "SMART" framework is proposed for selecting China's core assets: - S: Security (energy/resource security) - MA: Manufacturing Abroad (global manufacturing expansion) - RT: R&D Technology (hard technology)
Specific sectors include: - S - Energy/Resource Security: Gold, energy supply chain, resources (rare earths, minor metals, copper, aluminum), defense (defense technology, commercial aerospace). - MA - Manufacturing Abroad: Leaders in machinery, power equipment, home appliances, automobiles and components, pharmaceuticals, healthcare, and petrochemicals with a strong global footprint. - RT - Hard Technology: Strategic emerging industries outlined in the 15th Five-Year Plan, such as semiconductors, high-end equipment, new energy, new materials, robotics, innovative drugs, and aerospace; future industries including quantum technology, biomanufacturing, hydrogen and nuclear fusion energy, brain-computer interfaces, embodied AI, and 6G; as well as specialized and sophisticated niche market leaders.