Analysis of 2026 Portfolio Adjustment Strategies Amid Diverging Sino-US Monetary Policies

Against the backdrop of diverging Sino-US monetary policies, the Federal Reserve will lower the federal funds rate to the range of 3.50%-3.75% in 2025 [1][2][3], while the PBOC has kept the 1-year LPR unchanged at 3.00% for seven consecutive months [4][5], leading to a sustained inverted Sino-US interest rate spread (the U.S. 10-year Treasury yield is about 4.15%, data as of December 2025 [0]). The PBOC faces a policy dilemma: “cutting interest rates widens the spread and exacerbates capital outflows, while raising rates hits real estate and consumption”. To this end, it will use a “combination of policy tools” including capital controls, reserve requirement ratio cuts, structural re-lending, etc. [4].

1. Carry Trade and Capital Flow Risks
   : The inverted Sino-US interest rate spread provides room for carry trades, which may trigger short-term capital outflows. However, the PBOC’s “combination of policies”, especially capital control measures, are expected to mitigate this risk.
2. Emergence of Structural Opportunities
   : Reserve requirement ratio cuts and structural re-lending policies will provide targeted liquidity support to real industries such as high-end manufacturing, AI applications, and green energy; the high-dividend low-valuation SOE Reform (Zhongtegugu) sector, with stable dividends and low valuations, is expected to attract long-term funds and reduce the impact of capital flows; reserve requirement ratio cuts will also release liquidity and enhance the profitability of securities firms and small and medium-sized banks.
3. Sentiment Differentiation
   : The market is cautious about overall market volatility but optimistic about policy-supported beneficiary sectors, forming structural investment opportunities [0].

• Risks
  : The scale of carry trades and capital outflow pressure have not been confirmed by official data; continuous attention should be paid to foreign exchange reserves and northbound capital flows; the specific performance of beneficiary sectors is still market expectations and needs further verification.
• Opportunities
  : Sectors with clear policy support such as high-end manufacturing, AI applications, green energy, biomedicine, as well as high-dividend low-valuation SOE Reform (Zhongtegugu) sectors, have long-term investment value; reserve requirement ratio cuts are beneficial to securities firms and small and medium-sized banks sectors.

Against the backdrop of diverging Sino-US monetary policies, 2026 portfolio adjustments should focus on policy-supported structural opportunities, with key allocations to high-end manufacturing, AI applications, green energy, biomedicine, securities firms, small and medium-sized banks, and high-dividend low-valuation SOE Reform (Zhongtegugu) sectors. At the same time, close attention should be paid to capital flow risks and policy changes to maintain portfolio diversification.

Note that this report is based on obtained information and market expectations and does not constitute investment advice.