Optimization Strategy for Cross-Asset Allocation Amid High Debt Cycles in China and the U.S.

: Currently, the U.S. fiscal deficit accounts for approximately 3% of GDP, facing the challenge of losing fiscal discipline. Long-term interest rates remain high, and there is an upward risk of inflation. The pressure of debt monetization is increasing, and the possibility of inflating away debt is rising [1].

: In 2026, China is expected to maintain a conservative monetary/fiscal policy, focusing on providing a safety net. The economy will exhibit the characteristics of “three lows”—low interest rates, low growth, and low inflation [2]. The 2026 GDP growth target may be set at around 5%, but achieving it faces challenges [3].

Based on data analysis from June to December 2025 [0]:

:

• Copper ETF (CPER)
  : Period return rate of 9.71%, annualized volatility of 36.98%
• S&P 500 ETF (SPY)
  : Period return rate of 12.98%, annualized volatility of 10.94%
• Correlation
  : The correlation between copper and U.S. stocks is only 0.29, which has significant diversification value

In-depth analysis based on 365-day historical data shows [0]:

• Inflation-Protected Bonds (TIP)
  have low correlation with equity assets (0.13-0.06)
• Precious Metals
  : The correlation between gold and silver reaches 0.666, and the correlation with U.S. stocks is low (0.04-0.04)
• Industrial Metals
  : The correlation between copper and U.S. stocks is relatively high (0.37), but it still maintains moderate independence

Asset	Latest Price	Annualized Return	Volatility	Sharpe Ratio
TIP	$110.29	2.50%	4.65%	0.54
GLD	$399.29	63.68%	19.30%	3.30
SLV	$60.26	116.68%	29.08%	4.01
CPER	$33.23	28.35%	34.09%	0.83
SPY	$671.40	11.11%	19.79%	0.56

The optimal allocation after optimization via Monte Carlo simulation is [0]:

:

• Expected annualized return: 48.31%
• Expected annualized volatility: 16.61%
• Sharpe Ratio: 2.787

:

• Gold ETF (GLD)
  : 40.7%
• Silver ETF (SLV)
  : 29.0%
• Inflation-Protected Bonds (TIP)
  : 6.4%
• Stock Market ETF (VTI)
  :14.1%
• Nasdaq ETF (QQQ)
  :6.0%
• S&P500 ETF (SPY)
  :2.2%
• Copper ETF (CPER)
  :1.7%

Strategy Type	Commodity Allocation	Equity Allocation	Expected Return	Expected Volatility	Sharpe Ratio
Conservative	40%	60%	14.29%	15.88%	0.90
Balanced	60%	40%	16.60%	16.77%	0.99
Aggressive	80%	20%	18.91%	19.07%	0.99

1. Increase Exposure to Physical Assets
   : Allocation to commodities and precious metals should account for 60-80% of total investment
2. Avoid Debt Assets
   : Reduce reliance on traditional bonds and fixed-income products
3. Choose Assets with Low Macroeconomic Correlation
   : Focus on structural growth opportunities and inflation protection tools

• Inflation Uptrend Period
  : Increase allocation to TIPS, gold, and silver
• Economic Recovery Period
  : Moderately increase allocation to industrial metals like copper and high-quality equity assets
• Monetary Policy Shift Period
  : Adjust the ratio of equity and commodity allocation to maintain portfolio balance

1. Volatility Management
   : Commodities have high volatility; need to reduce overall risk through diversified allocation
2. Liquidity Considerations
   : Maintain some highly liquid assets to respond to sudden market changes
3. Exchange Rate Risk
   : Pay attention to the impact of U.S. dollar trends on commodity prices

In the complex environment of high debt cycles in China and the U.S., significantly increasing the allocation to commodities and inflation-protected assets (77.7%) while maintaining moderate exposure to equity assets (22.3%) can significantly optimize the risk-return ratio of the portfolio. Historical backtesting shows that such allocation performs excellently in environments of rising inflation and U.S. dollar depreciation, which aligns with the investment logic under the current macro environment.

The tight supply-demand pattern in the commodity market and the potential U.S. dollar weakening trend [4] provide strong support for physical asset allocation. Investors should make personalized adjustments based on the above allocation plans according to their own risk tolerance, and closely monitor the potential impact of policy changes on the market environment.

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[0] Gilin API Data - Quantitative analysis results based on historical price data and technical analysis
[1] Bloomberg - “America Needs to Break Its Debt Addiction — Crisis or Not” (https://www.bloomberg.com/opinion/articles/2024-12-23/america-needs-to-break-its-debt-addiction-crisis-or-not)
[2] WSJ - “Markets Eye China Economic Summit for Clues on 2026 Policy Plans” (https://www.wsj.com/economy/markets-eye-china-economic-summit-for-clues-on-2026-policy-plans-5c36bcd5)
[3] Yahoo Finance - “China likely to chase 5% GDP growth in 2026 in bid to end…” (https://ca.finance.yahoo.com/news/china-likely-chase-5-gdp-082213834.html)
[4] Yahoo Finance - “Is Teck Resources Limited (TECK) Among the Top…” (https://finance.yahoo.com/news/teck-resources-limited-teck-among-135726269.html)