Haitong International Zhang Yidong: Rebuilding the international order presents opportunities amid challenges; China's hardcore assets are on a long-term bull run.

What substantive actions from the U.S. will trigger TACO2.0?

Author: Zhang Yidong, Member of the International Executive Committee of Haitong, Chief Economist

Overseas Market Outlook: In the short term, we must wait for a true TACO2.0; before that, vigilance is necessary; in the medium term, the role of TACO will weaken, and a security premium may exist long-term.

When will we truly welcome a trend of Risk On? The core key lies in when the U.S. takes substantive actions to compromise or de-escalate the situation in the Middle East, rather than inconsistent statements from Trump.

Predicting geopolitical trends is challenging; it’s better to patiently wait and respond actively!

In the context of the mid-term elections, time is Trump’s enemy. Drawing lessons from March 2020 and April 2025, ultimately, the stock market decline and inflation concerns will force Trump to take substantive actions to compromise, such as a ceasefire agreement or troop withdrawal being options; only then will we see a true TACO2.0.

In the case of TACO2.0, the global capital markets will welcome decent rebound opportunities.

1. In the stock market, the tech growth style will return. Focus on leading companies in the U.S. and Chinese stock markets with strong tech capabilities, especially China’s hard-core assets.

2. Gold, although it has seen a sharp decline in the short term due to profit-taking pressure, the logic of oil dollars, and recent liquidity shocks, will continue to rise in the medium to long term.

The logic behind this round of the super bull market in gold comes from its monetary essence as a hedge against sovereign credit risk and the certainty premium of the reconstruction of the international order. Gold has become a strategic ballast and the ultimate credit anchor in the restructuring of the international order.

In the medium term, the Risk On effect caused by TACO will continue to weaken; conversely, the risk premium of U.S. stocks, which has been on a downward trend for over a decade, may see a trend reversal in 2026.

In the long term, this Iranian war marks a milestone in the era of international order reconstruction, with strategic value reassessment for “hard-core assets” such as energy, gold, resources, and military technology.

In terms of investment strategy, “patience and steady progress, avoid arrogance and impatience,” grasp the strategic opportunities of China’s hard-core assets.

The correlation between the Chinese stock market and the U.S. stock market is the lowest among global mainstream stock markets, and during the period of international order reconstruction, China’s hard-core assets are expected to enter a long bull market.
Currently, the Chinese stock market offers outstanding cost-effectiveness, with valuations at a global low, and significant horizontal discount effects, providing notable space for catching up with overseas mainstream stock markets; China’s “hard-core assets” will be the core driving force for future market trends.

We propose the “SMART” stock selection framework for China’s “hard-core assets,”
which stands for S: Security (energy/resource security) + MA: Manufacturing Abroad (manufacturing overseas) + RT: R&D Technology (hard technology).

Specifically,

S - Energy/Resource Security: Gold, energy industry chains, resources (rare earths, minor metals, copper, aluminum, etc.), and military industry (military technology, commercial aerospace, etc.).

MA - Manufacturing Abroad: Leading companies deeply engaged in globalization in machinery, electric equipment, home appliances, automotive and parts, pharmaceuticals and medical, petrochemicals, etc.

RT - Hard Technology: “14th Five-Year Plan” strategic emerging industries: semiconductors, high-end equipment, new energy, new materials, robotics, innovative medicines, aerospace; future industries: quantum technology, bio-manufacturing, hydrogen energy and nuclear fusion energy, brain-computer interfaces, embodied intelligence, 6G; specialized, refined, unique, and leading companies in niche segments.