Both the equity and bond markets have good prospects; "Fixed Income+" products are a better choice.

Looking ahead to the Year of the Horse, Xu Bowen, head of the Macroeconomic Research Group and fund manager of ICBC Credit Suisse Fund’s Fixed Income Department, stated that the domestic economic fundamentals are expected to improve, with potential risks and market volatility mainly stemming from overseas factors. “From an asset allocation perspective, the current stock-to-bond ratio is in a neutral range historically, and the fundamental environment and capital flows are more favorable to equities overall. Bond holdings are expected to perform better than last year and may provide relatively stable returns,” Xu Bowen said.

In Xu Bowen’s view, considering the current position of the domestic economic cycle, after a prolonged period of downward adjustment, the economy is approaching the bottom as the real estate sector undergoes deep cleanup and gradually stabilizes. Policies related to “anti-involution” continue to be promoted, and supply-side reforms are accelerating. The fundamentals may have passed the most challenging phase, and the supply-demand pattern is expected to gradually improve in the medium term, helping to stabilize PPI and nominal GDP growth, which is more conducive to the performance of the equity market. Additionally, from a capital perspective, referencing mature overseas markets, in a low-interest-rate environment, residents’ risk appetite for asset allocation tends to increase, and an appropriate increase in allocations to equity-like assets is advisable. Meanwhile, the clear stance of policies to support the capital market, along with sustained inflows of medium- and long-term funds, will help improve the risk-return profile of the A-share market and enhance its attractiveness.

However, the volatility risks brought by changes in overseas liquidity should be closely monitored. Currently, market expectations for global liquidity easing are generally optimistic, supporting thematic investments in “big narratives” and the high valuation of related assets. Xu Bowen pointed out that major economies’ monetary policies are diverging: Japan is in the process of normalizing monetary policy, and the European Central Bank has paused rate cuts. The future easing space for overseas liquidity will mainly depend on the Federal Reserve’s policy trajectory.

“Under this backdrop, asset prices are becoming more sensitive to changes in liquidity expectations, with significant increases in volatility for US AI stocks, precious metals, and Bitcoin. Before overseas liquidity expectations stabilize again, this high-volatility environment may persist and have spillover effects on the rhythm and style of the A-share market. Going forward, attention should be paid to the evolution of US inflation expectations,” Xu Bowen said.

Regarding the bond market, Xu Bowen stated that current bond valuations are generally aligned with fundamentals and are within a reasonable range, with market expectations becoming more rational and trading structures relatively healthy. Considering that the economy is still stabilizing at a bottom and inflation levels are low, the supportive monetary policy tone is expected to continue. This year, bond holdings are likely to perform better than last year in terms of experience and returns. Opportunities include the liquidity effects brought by the appreciation of the renminbi, which may lead to increased foreign exchange settlement flows; risks mainly involve the marginal changes in inflation expectations and housing prices.

Therefore, in an environment where equity assets are trending upward but with increased volatility, and bond assets seek stable returns, Xu Bowen believes that “Fixed Income Plus” products remain a preferable choice for residents’ asset allocation, especially those with strong asset allocation capabilities and flexibility to respond to market changes, which are likely to offer a good holding experience.