The chief economist at China Fortune Innovation Fund (创金合信基金) has released a new analysis suggesting that investors are facing a fresh set of conditions and challenges, comparable in intensity to those seen before the market rally of 2024. The central thesis is that the first complete pricing cycle of the sixth Kondratiev wave has concluded, and a new paradigm is solidifying, requiring a significant strategic overhaul.
This new cycle was defined by the Federal Reserve's shift from cutting rates to hiking them. With the Fed's 25bp rate hike on September 17, 2026, the first full asset pricing cycle since the start of the sixth Kondratiev wave officially ended. A common but simplistic post-mortem blames July 2026's tech sector sell-off on this Fed hike, but the timeline shows domestic valuation adjustments began two months prior, a classic case of confusing cause and effect.
The analysis outlines five key features of the new reality. Globally, the risk-free rate has seen a systemic re-rating, with the 10-year Treasury yield now finding a new medium-term normal in the 4%-5% range, a significant departure from the past decade's ~2% level. The market's main narrative has also shifted from generalized AI to the more complex and contested concept of AGI, which often serves more as a marketing tool than a near-term commercial reality. This narrative shift masks a fundamental change in how AI expansion is being funded, moving from corporate profits to external credit expansion, a structural shift that creates high divergence in companies' ability to generate commercial returns.
Domestically, the total economic recovery remains limited, constrained by a long-term real estate down-cycle. Inflation has been rising, but driven by external supply rather than an explosion in domestic demand. This has created a unique situation where foreign tightening pressures were absorbed not through higher domestic rates, but through a stronger yuan and valuation compression in growth stocks. Consequently, the equity market is in a neutral valuation zone—not cheap, but not expensive either—with no basis for a broad bull market. Opportunities are strictly structural and selective.
The core problem lies in the significant mismatch across five key cycles—Kondratiev, Kuznets, Juglar, Kitchin, and Minsky—which explains the contradictory market phenomena of the past two years. While aggregate growth was weak, some emerging industries boomed; overseas rates rose, but the domestic bond market rallied; and the yuan appreciated while growth stocks corrected. This "quantity-price separation" at the macro level is a direct result of these cycles operating in different phases.
The full cycle's dramatic outcomes were starkly reflected in asset performance. From its August 30, 2024 starting point, the CSI Semiconductor Index hit a maximum gain of 210.1%, making it the cycle's biggest winner. In contrast, the CSI Baijiu Index suffered a peak decline of 53.1%, illustrating the classic market pattern where a new dominant technology crushes the valuations of traditional core assets. A clear inter-market time lag also emerged, with overseas markets repricing tech valuations two to three quarters before the A-share market. The Hang Seng Tech Index peaked and fell as early as September 2025, while the A-share tech sector continued to climb for another nine months before its own correction in July 2026.
The interplay between bond and stock markets provided another key lesson. Credit investors began reassessing AI-related debt as early as February 2026, signaled by falling subscription multiples for new bonds and widening CDS spreads. Stock markets, however, remained buoyed by the industry narrative and did not react until July. This two-to-three-month lag shows that bond investors, focused on solvency, smell risk earlier. The fact that credit spreads widened without a liquidity freeze is why the July 2026 sell-off was a valuation reset, not a systemic debt crisis. This was further evidenced by the market’s divergence: while tech indices like the CSI Semiconductor, STAR 50, and ChiNext plunged in July, defensive sectors like CSI Bank, CSI Dividend, and the Hang Seng Index were relative outperformers.
Looking ahead, the investment strategy must adapt to a world where the core market driver is switching from liquidity to earnings delivery. The recommended approach is to build a portfolio with dividend and low-volatility stocks as a core anchor, and then prioritize companies that can convert technological investment into real profit. It is crucial to differentiate between AGI promotional hype and actual commercial viability, favoring upstream computing power and leaders with robust moats over narrative-driven stories without a business model. For bonds, the new normal of higher global risk-free rates necessitates a focus on high-grade, short-duration government bonds. In commodities, opportunities exist in industrial goods on the back of PPI recovery, while gold should remain a strategic hedge against geopolitical risk rather than a speculative play.
The conclusion is that while this first cycle has ended, the sixth Kondratiev wave has only just begun. The core investment theme is the complete AI-AGI industry chain, including computing power, energy, and data. A path will be volatile, as the previous cycle clearly demonstrated. Investors must abandon hopes for a strong aggregate recovery and a broad bull market, and instead remain vigilant, focusing on structural opportunities with genuine earnings delivery potential, integrating macro-cycle analysis into asset allocation, and waiting patiently for the next significant industrial push.