《2024 Year-End Review and 2025 Outlook — Hedging Risks VS Soft Landing》Part 1 Fu Peng HSBC Speech

As the year comes to an end, although HSBC just emphasized that no one should record or film, it's highly likely you can't stop it. I'll be very cautious with my words here, extremely careful, because it's highly probable someone will leak it and post it on YouTube. Almost everyone who meets me says, 'General Fu, I've seen your videos on YouTube.' I reply, 'Those are all pirated.' Quite a few have made fortunes from piracy.

What I’m sharing with you today is mostly official, with more focus on retrospectives and less on forward-looking statements. After all, if I share the outlook this month, what will I talk about next month? Some things are quite simple from my perspective. Originally, we came from a Hedge Fund background, so our logical framework has strong continuity. It’s not something we discuss just for this year or next.

Since 2016, I’ve been emphasizing that the world has completely changed. After the past few years, I believe everyone here has a deeper understanding of this.

2016 was actually the year of Trump’s first election. One of my traits is that if I sense an investment opportunity, I’ll go straight to the frontline for research. I don’t like watching YouTube or digging through online content. Of course, you might say ChatGPT is powerful now, and AI seems to solve many problems. But have you considered that much of the widely circulated information could be wrong? This realization hit me hardest in 2012 after I returned from research in Japan.

During my Japan trip, there was an important figure named Vincent. You’ll soon become very familiar with him—he’s currently Trump’s nominee for U.S. Treasury Secretary. Vincent was the de facto controller of Soros Fund Management because 'Uncle Soros' was already very old. It was only last year that he handed over the fund’s operations to his son, Alexander. But before that, Vincent was the mastermind behind several major battles.

In 2012, during a dinner in Hong Kong with friends, someone from Soros Fund’s Hong Kong office told me Vincent had gone to Japan. I said, 'OK.' I often say, 'Stand on the shoulders of giants to see further.'

Of course, you know the scariest thing about netizens is their tendency to label Buffett as an 'idiot,' Soros as an 'idiot,' and themselves as 'the best.' Remember, their behavior is bound to change drastically. Many might not even know that Buffett’s first trip was in 2011, during the Fukushima nuclear leak when seafood was deemed unsafe due to contamination. An 80-year-old man braved nuclear radiation to eat seafood in Japan—what was he really doing there? That’s the key question.

After returning from Japan, I kept telling people over the years that Japan was changing—its interest rate structure, even its securities market. This year, Japan’s stock market finally broke its 35-year stagnation, setting a historic record.

But many online still say they don’t see anything significant in the economic data. This is what we call the 'information gap.' People’s understanding of society and the economy is often clouded by inertia. A few years ago, I often explained Japan’s situation: Why must the economy always grow? Could there be a scenario where no growth still brings prosperity?

For example, after China’s 40 years of reform and opening up, we’ve grown accustomed to economic growth. Without it, we feel distressed. But have you considered a scenario where the cake isn’t growing, yet you get a bigger slice? The answer lies in redistribution. Why always focus on division of labor, hard work, and growth? Why not consider redistribution? Why must Japan grow? In my words, Japan kept the cake the same size for 30 years, but now long-term interest rates are rising because the younger generation can take a bigger share. Why? Do you know Japan’s 2012 mortality data? Have you noticed its demographic shifts?

Today, you suddenly realize job interviews in Japan now have applicants sitting while recruiters stand. Don’t worry—China’s problem isn’t hiring but HR layoffs. What’s the root cause of this change? Many just follow inertia; they can’t truly grasp the world.

The past 40 years have seen earth-shaking changes. Since 2016, China is no longer the China of the past 40 years, nor is the U.S., Japan, or Southeast Asia. The logic of capital operation is undergoing massive shifts. If you cling to old mindsets, you won’t understand what I’m saying.

I can only say, let’s see how fate unfolds. I don’t need everyone to agree with me. If you get it, you get it. The sooner you understand, the sooner you’ll grasp the monumental changes post-2016.

The latest U.S. election sees Trump returning, but this time is different from 2016—he’s more right-wing now. The 2016 political shift was essentially about deglobalization and right-wing populism. That year, I compiled a draft of my book but never published it. Last year, my child started a media company, so I handed the manuscript over as part of their publishing business—hence the book 'Witnessing the Countercurrent.'

But the book is incomplete. The full text is nearly 700,000 words, but only 500,000 made it to print. About 200,000 words were cut—key sections outlining our core framework for global macro assets. What is the pyramid’s foundation? It’s all assets and markets, which sit at the very bottom. Daily questions about rising home prices or stock prices? Those are the pyramid’s base.

A bit higher, some say macroeconomics matters, especially post-2008 for Chinese investors. Before the financial crisis, most Chinese investors chased 'dragon-slaying strategies'—how to catch limit-ups.

But the 2008 crisis made many in finance realize global markets are interconnected. That’s when true finance began taking root in China. Some started recognizing macroeconomics’ importance. Among the 36 chief economists at the CSRC, I’m the least orthodox—I’m not academic or government-bred; I’m from the frontline. Our perspectives differ entirely.

Recently, on Fox News, Vincent clashed with Nobel economists about tariffs. You’d suddenly see how market practitioners view tariffs versus academics—or even how tariffs are portrayed on the news: 'U.S. imperialism’s tariffs plunge people into misery.' If you’re sharp, you’d spot the discrepancies.

This time, Trump’s team is all about real power and sweeping control—right-wing populism faces no checks. The third factor? It’s all doers. Guess the outcome? This battle will be tougher than 2016.

Higher up the pyramid? Politics—Democrats, Republicans, global political shifts. But the very top? Ideology.

I tell researchers: Don’t blindly compare global economies. Many reports make this mistake—comparing eras like the '70s or '80s. Such comparisons are just filler. From my view, I’d trash those reports unread. I pity these analysts—forced to churn out lengthy reports nobody reads.

What’s the top-layer discontinuity? It’s ideological cycles—left vs. right, collectivism vs. individualism. These shifts drive global economic cycles. Our leader’s phrase is apt: 'Changes unseen in a century.' Essentially, it’s the end of a cycle from the 1929 crash to post-WWII. The world swung from extreme right-wing post-war to center-right, then center-left, and now extreme left-wing over 20 years—only to swing right again. No direction is absolutely correct.

I always advise against online left-right fights. It’s like wanting a girlfriend who’s beautiful, long-legged, busty, slim, rich, and madly in love with you—pipe dream. Pick one trait. Perfectionism doesn’t exist. Political shifts impact economics, which then hits financial markets. Remember the pyramid’s logic.

Most times, we ignore the top layer because, for a century, its direction was fixed—shifting leftward from extreme right-wing. This created a consistent operational logic below.

Take the U.S. Ray Dalio’s book on debt crises shows an interest rate curve—near zero pre-WWII, peaking in the '80s, then back to zero post-2008 and during COVID. What do rate lows signify? Why do they often precede wars? Because rates reflect wealth gaps—lower rates widen gaps, higher rates narrow them.

Of course, we’re all biased. If you hold leveraged financial assets, you’ll cheer for low rates—just like how many believed the U.S. couldn’t hike rates without crashing for 40 years. But did anyone consider this logic could change?

Years ago, I told many: China’s shifting from high to low rates, while overseas moves from low to high. Some obsess over 4% vs. 5%—but what’s the difference between 0%, 1%, and 2%? That’s the key. If Trump returns, might we see a 50bps cut, then a 25bps hike? Normal fluctuations. The critical point is rates won’t return to 0-2%.

For labor, rates matter. If rising rates stem from wage growth, that’s good. Think back 20 years in China—were high rates painful? No. Now, low rates feel painful. Why? It depends whether income comes from labor or leveraged capital. Your rate sensitivity flips accordingly.

But societal wealth discussions focus on labor value. Delivery drivers and gig workers? They’re the 'lost generation'—labor’s losers in the past 20-30 years. Inevitable, but such pressures breed social strife, even political shifts via votes. Extreme wealth gaps always correct—whether under left or right regimes. That’s societal law.

The past century’s cycle culminated in 2016—ostensibly a U.S.-China trade war, but really a global display of internal contradictions. Domestically, it’s redistribution; externally, it’s reallocation. Against this backdrop, war risks rise.

Recently, we saw history’s first ICBM launch—just without a warhead. Think that’s distant? Our generation is fortunate but will witness 'changes unseen in a century.'

Many ponder the world as if we can return to the past. Impossible. The era of global integration, leftward drift, and globalization ended in 2016.

Many misjudged 2016 as just a trade war. After two weeks in D.C., I told people: It’s not about parties—Democrats or Republicans won’t go easy on China. Both parties agree on pressuring China—just differing degrees. For China, the '80s-'90s saw Western right-wing integration while China moved rightward (not politically—note Western 'right-wing' differs from China’s). This allowed WTO accession and reform.

I often say women are naturally right-wing—blaming others, not themselves. If husbands are left-wing ('Honey, my fault'), marriages thrive. Two left-wingers? Bliss. Two right-wingers? Divorce.

This isn’t just about families—it’s nations. When all countries lean left, it’s global harmony. When all lean right, it’s war.

Our big problem? The world’s rapid rightward shift over 5-6 years—seen in anti-immigration, traditionalist votes, etc. My trade idea: Long U.S., short Canada. Why? Canada’s PM let in too many immigrants, straining its wealth distribution—triggering conservatism.

Global unrest isn’t just about assets. Britain now taxes non-citizens’ inheritances. To the wealthy: Hide money in left-wing times, but pay taxes in right-wing eras. Trump once offered 20% repatriation—how much capital returned?

Understanding left vs. right is my book’s essence—but it got cut. Grasp this, and you’ll see through economics, rates, and assets. Who created this framework? Soros, Vincent, and peers.

What am I really saying? A retrospective. Since 2016, issues have surfaced. Trump’s return accelerates U.S. restructuring—exposing Democratic left-wing errors and right-wing growth potential.

As global investors, we should stay ideologically neutral. I know left and right each have pros and cons. I won’t pick sides—just adjust my trades accordingly. I didn’t expect U.S. right-wing momentum this fast.

China faces internal and external challenges. Is China following Japan’s path? The question is too broad. Break it down: Household sectors? 99.99% similar. Corporate, government, financial sectors? Different. International context? Different. So, is the answer 'same' or 'different'? Meaningless.

I often compare Chinese and Japanese households. Buffett’s big bets on Mitsui, Mitsubishi, etc.? He’s participating in Japan’s 40-year wealth redistribution. I might send my son to Japan—not for AI studies but to marry into old wealth. Buffett uses money; I use family. Same goal: redistribution.

Japan’s core? Redistribution, not growth. Many don’t get it because they’ve never redistributed—only grown. When growth slows, the bottom starves. GDP growth of 5%? Each class feels it differently. Some call data fake—maybe not. The 5% is the whole cake; your slice depends on your class.