Background of the report: This article is summarized and illustrated using ChatGPT and Manus. This article is a summary of some of the content that Fu Peng talked about at an internal private meeting at HSBC six months ago.
Global Landscape: The Pyramid Structure of Ideology and Economy
Fu Peng pointed out that the current global macroeconomic landscape shows a clear “right-wing” trend. In his view, ideology is at the top of influence, politics is in the middle, and markets and assets are at the bottom, like a pyramid structure. Trump’s election in 2016 marked the beginning of the dissolution of the globalization order, followed by profound changes in world politics and economy, with right-wing ideology infiltrating the economic sphere. If future U.S. political power further shifts towards “pragmatists,” the global economic situation will become even more complex and severe. Against this backdrop, Fu Peng advised global investors not to blindly take sides: regardless of whether the world leans “left” or “right,” investors should clarify their trading path, but should not assert who is absolutely correct, otherwise, misjudgment is likely.
Deep-seated Contradictions in the Chinese Economy
Insufficient Effective Demand and Consumption Differentiation: Fu Peng believes that China’s economic problems are more severe than they appear on the surface, with the core issue being “insufficient effective consumption.” This problem has been evident since 2019, with clear class differentiation: consumption capacity of low-income residents has declined, leading to consumption downgrades; the middle class has significantly cut spending due to layoffs, salary reductions, etc.; high-income earners have also curtailed consumption, including sluggish sales of luxury brands. To solve the problem of insufficient domestic demand, there must be a redistribution of interests among the government and residents, between the rich and the poor, and between debt and leverage; otherwise, under the existing power and resource allocation structure, once economic growth slows, the lowest-income groups will be the first to fall into hardship.
Middle-Class Decline: Fu Peng cited the sudden increase of about 20 million ride-hailing drivers in the past two years as an example, which indicates that a large number of middle-class laborers were forced to change professions. This reflects that stagnant income growth has led to the accelerated exit of the original middle class. The rapid decline of the middle class further weakens the main consumption force, dealing a heavy blow to domestic economic demand.
Real Estate Bubble and Intergenerational Burden: In the past 20 years, the rise of China’s real estate market mainly relied on two factors: demographic dividends and high leverage. The current model is unsustainable because it requires young people to “take over,” but their repayment ability is severely insufficient. Fu Peng gave an example: the previous generation bought a property for 2 million yuan, and now wants to sell it to young people for 6 million yuan, which means young people need to bear large loans equivalent to 40 years of future income. If young people’s income growth cannot keep up with repayment pressure, they must “bite the bullet” and repay loans for 40 years. Fu Peng concluded that the short-term wealth growth gained by vested interests is actually the short-term accumulated debt of the younger generation. When young people’s debt reaches a critical point, the entire real estate market may completely collapse.
Exchange Rate Depreciation and Capital Flow: Fu Peng analyzed that when fiscal expansion, insufficient demand, and falling interest rates occur, domestic investment returns decline, and savings are excessive. In this context, the exchange rate represents changes in actual returns and the purchasing power of the local currency, meaning actual purchasing power is weakening. For emerging markets, this often triggers a vicious cycle: “Interest rate differential drives exchange rate depreciation → capital outflow → forced interest rate hike → economic recession.” Fu Peng warned that such a cycle could lead to an emerging market crisis.
Investment Insights and Strategies
Under the combined effect of global and domestic factors, Fu Peng emphasized that investors should be extra cautious and focus on hedging risks. First, avoid blindly taking sides: when global politics and economy develop left or right, be prepared with corresponding strategies, and do not bet on a single outcome. For example, if the world tends to turn left, there should be corresponding arrangements; if the world tends to turn right, the plan should be adjusted in time, but never put all assets in one camp. Second, within China, attention should be paid to the chain reaction brought by consumption weakness and real estate risks, and investment in related industries and assets should be cautious. An asset allocation pyramid diagram or diversified investment framework diagram can be constructed, placing stable, low-risk assets at the base and high-growth potential assets at the top, to achieve steady growth and risk diversification. In short, investors should prevent ideological biases from affecting judgment, ensure information transparency, adjust strategies in a timely manner to market dynamics, and strengthen risk management and asset preservation and appreciation capabilities.
Key Points Summary:
- Global politics and economy are undergoing a major right-wing shift, with ideology becoming a core factor influencing economic trends.
- The Chinese economy faces structural problems of insufficient demand and unbalanced income distribution, with declining resident consumption and widening wealth gaps exacerbating weak domestic demand.
- The accelerated decline of the middle class and real estate bubble risks have burdened the younger generation with heavy debt, and systemic risks are accumulating.
- The current macroeconomic environment may lead to a vicious cycle of exchange rate depreciation and capital outflow, requiring high vigilance against emerging market crisis models.
- Investors should adopt risk-hedging strategies, avoid blindly taking sides, diversify asset allocation, and strengthen risk management.
