Western Securities(SZ:002673) Western Securities·2026-01-04 08:56Core Conclusions - The report suggests that 2025 may be just the "prelude" to a bull market, with the Federal Reserve likely to restart interest rate cuts, leading to a rapid return of cross-border capital to China, which will help various price indices (PPI + CPI) emerge from "deflation" [1] - The report anticipates that in 2026, China will experience a period of prosperity similar to Japan in 1978, driven by the appreciation of the RMB, which will enhance cash flow statements and balance sheets in the real economy [1] Group 1: China’s Economic Outlook - China entered the current Kondratiev wave downturn in 2019, but the external constraints are gradually being lifted, allowing for a return to prosperity [1] - The report indicates that the Federal Reserve's interest rate cuts in 2025 will facilitate the recovery of cash flow statements for enterprises and households in China [1] - The anticipated quantitative easing (QE) by the Federal Reserve in 2026 will open up policy space for the People's Bank of China to implement similar measures, further aiding the recovery of balance sheets [1] Group 2: U.S. Economic Conditions - The report highlights that the U.S. is currently in a Kondratiev wave downturn, with the stock market and economy on the brink of crisis due to over-reliance on AI investment narratives [2] - It notes that the U.S. stock market is at a "crisis edge," and the potential for liquidity shocks is high as cross-border capital begins to flow out of the U.S. [2] - The report warns that if AI investment expectations fall short, it could lead to a negative narrative impacting U.S. consumption and economic stability [2] Group 3: Global Liquidity Trends - The report predicts that the Federal Reserve is likely to shift towards QE, resulting in an increase in global liquidity [3] - It emphasizes that the primary goal of the Federal Reserve is to prevent liquidity shocks in the U.S. market, which will influence global capital flows [3] - The report suggests that the current tight liquidity in the U.S. is pressuring the Federal Reserve to adopt "quasi-QE" measures [6] Group 4: Currency and Capital Flows - Following the Federal Reserve's interest rate cuts, cross-border capital is expected to accelerate its return to China, shifting the A-share market from a tech-focused trend to a cyclical recovery [7] - The report anticipates that the RMB exchange rate will likely break previous highs of 6.8 and 6.3, entering a long-term appreciation cycle [7] - It highlights that the RMB's appreciation will create a positive feedback loop, encouraging further capital inflows into China [7] Group 5: Commodity Supercycle - The report discusses a potential supercycle in commodities driven by de-globalization and a dollar crisis, with supply constraints likely to emerge as resource-rich countries tighten supply [9][10] - It suggests that the demand for commodities will remain resilient due to strategic stockpiling and supply chain improvements in various countries [10] - The report indicates that this supercycle could last for several years, with precious metals leading the way in revaluation [11] Group 6: Sectoral Opportunities - The report identifies key sectors for investment, including non-ferrous metals, consumer goods, and high-end manufacturing, which are expected to benefit from the recovery of cash flow and balance sheets [13] - It emphasizes the importance of focusing on sectors that are likely to achieve new highs, particularly in the context of the anticipated economic recovery [13] - The report suggests that the manufacturing sector will see a systematic recovery in valuations as cash flow statements improve [11]