Evaluation of the Effectiveness of Physical Asset Allocation Strategies in the Context of Sino-US Debt Cycles

Based on Wall Street’s overall outlook analysis for 2026, the market expects China’s economy to continue maintaining a

: low interest rates, low growth, and low inflation. In this environment, policymakers are expected to adopt relatively conservative bottom-line strategies, focusing on maintaining financial stability rather than pursuing high growth [1].

In contrast to China’s conservative stance, the U.S. is facing a

situation. The Federal Reserve’s continued interest rate cuts (loose monetary policy), coupled with fiscal stimulus measures such as the “Big and Beautiful Act”, are expected to increase GDP by approximately 0.9% [1]. This environment may push up inflation expectations, making it difficult for long-term interest rates to decline significantly.

Based on actual transaction data from 2025, I conducted a comprehensive comparison of the performance of physical assets and traditional financial assets:

Asset Class	2025 Return Rate	Annualized Volatility	Sharpe Ratio	Correlation with S&P 500
Gold	+64.21%	20.04%	2.56	0.029
Copper ETF (CPER)	+30.92%	34.73%	1.02	0.371
S&P 500 (SPY)	+16.44%	19.83%	0.89	1.000

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1. Gold Performance Stands Out
   : In a low-interest-rate environment, gold performed excellently as an inflation hedge, with a Sharpe ratio of 2.56, far exceeding other asset classes.

2. Moderate Correlation of Industrial Metals
   : Copper has a correlation of 0.371 with the stock market, providing moderate diversified returns but with higher volatility.

3. Risk-Adjusted Returns
   : Physical assets as a whole performed well on a risk-adjusted basis, especially gold, which excelled in controlling drawdowns.

Against the backdrop of current U.S. dual fiscal and monetary easing, physical assets, especially precious metals, have demonstrated strong inflation hedging capabilities. Gold’s return rate of over 60% in 2025 fully proves its value in an environment of rising inflation expectations.

From the correlation analysis, gold has a correlation of only 0.029 with the stock market, and copper has a correlation of 0.371 with the stock market, both providing effective diversified returns and helping to reduce overall portfolio volatility.

In a low-growth, low-inflation environment, physical assets can provide nominal yield protection, preventing investors from losing purchasing power when real yields are compressed.

Industrial metals such as copper have an annualized volatility of 34.73%, significantly higher than the stock market’s 19.83%, requiring investors to have strong risk tolerance.

Commodities have obvious cyclical characteristics and may face weak demand pressure during economic slowdowns, especially industrial metals.

Compared with stocks and bonds, some physical asset investment tools have relatively poor liquidity and may face increased transaction costs during periods of market pressure.

Wall Street generally expects the Federal Reserve to continue cutting interest rates, which creates a favorable environment for physical assets. Low interest rates reduce the opportunity cost of holding non-income-generating assets and enhance the attractiveness of zero-coupon assets such as gold [1].

The divergence between China’s conservative policies and the U.S.'s loose policies may lead to changes in global capital flows. Funds may flow from the low-growth Chinese market to the U.S. and other markets with higher growth potential, a trend that is beneficial to dollar-denominated commodities.

Based on risk-return characteristic analysis, it is recommended that physical assets account for

of the investment portfolio:

• Gold and related precious metals: 10-15%
• Industrial metals (copper, aluminum, etc.): 5-10%

1. Gold
   : Consider liquid ETFs such as GLD and IAU
2. Copper
   : Physically backed ETFs such as CPER
3. Comprehensive Commodities
   : Multi-commodity ETFs such as DBC provide broader risk diversification

It is recommended to dynamically adjust allocations based on the following indicators:

• U.S. core CPI trend changes
• Federal Reserve policy rate changes
• China’s manufacturing PMI and other economic indicators

Comprehensive analysis shows that in the context of the current Sino-US debt cycle,

.

The core advantages of this strategy are:

1. Inflation protection
   : Effectively hedges inflation risks in the U.S. loose policy environment
2. Diversified returns
   : Low correlation with the stock market, enhancing portfolio stability
3. Real return protection
   : Maintains purchasing power in a low-interest-rate environment

However, it should be noted that this strategy is not risk-free; investors need to fully recognize the high volatility characteristics of commodities and allocate appropriately according to their individual risk tolerance.

[0] Gilin API Data - 2025 Stock and Commodity Price Data
[1] Yahoo Finance - “A Review of Wall Street’s 2026 U.S. Stock Outlook (Predictions and Analysis from 13 Major Banks)” (https://hk.finance.yahoo.com/news/盤點華爾街-2026年美股展望（13間大行預測及分析）-213735855.html)