CICC: How to Hedge AI Risks?

Authors: CICC Multi-Asset Allocation: Li Zhao, Yuan Shuai, Yang Xiaoqing, Wang Tianyi

From AI Trading to the "AI Dollar": The Dollar Becomes the "Dividing Line" for Global Equity Market Divergence

Against the backdrop of restructuring the international monetary order, we believe "de-dollarization" remains the prevailing trend, and the dollar faces long-term depreciation pressure. However, since 2026, the dollar has been relatively strong in phases. In addition to inflationary pressure triggered by geopolitical conflicts, the AI rally may provide key support. On the one hand, cross-border transactions in the AI industry chain—such as advanced chips, cloud services, and computing power—are largely settled in dollars, and industrial expansion may increase dollar demand in phases, creating the so-called "AI dollar" effect. On the other hand, AI investment strengthens the growth momentum of relevant economies, especially the United States, where nearly 30% of the projected 2026 real GDP increment is expected to come from AI. Economic growth resilience creates conditions for the Federal Reserve to raise interest rates, and rising U.S. Treasury yields push the dollar higher. But for economies with relatively low AI exposure, the tightening of external financing conditions and capital outflow pressure brought by a stronger dollar instead drag down economic and market performance.

Under the influence of the above mechanisms, the dollar has become the dividing line for the divergent global equity market performance amid the AI revolution: since 2026, the U.S., Japanese, and Korean equity markets, which are deeply involved in the AI industry chain, have been positively correlated with the dollar, while the Indian stock market and the Hang Seng Index, which benefit relatively less from AI, have been negatively correlated with the dollar.

Chart 1: Since 2026, the Nikkei 225 has been positively correlated with the dollar

Source: Wind, CICC Research

Chart 2: Since 2026, Korea's KOSPI has been positively correlated with the dollar

Source: Wind, CICC Research

Chart 3: Since 2026, the Hang Seng Index has been negatively correlated with the dollar

Source: Wind, CICC Research

Chart 4: Since 2026, the Indian stock market has been negatively correlated with the dollar

Source: Wind, CICC Research

Chart 5: Correlation between the dollar index and major asset movements since 2026: The dollar has become the "dividing line" for global equity market divergence

Note: Data for various assets as of October 8.

Source: Wind, CICC Research

AI Trading Volatility Is Rising; Besides Adding Defensive Assets, Dollar Depreciation Trades Can Also Serve as a Hedge

Although the AI revolution is still in its early stages, the market has begun to worry about slowing growth at leading companies and whether future returns can cover the current large-scale investment. The market expects the year-over-year growth rate of capital expenditure by the seven U.S. AI giants to decline from about 90% in 2026 to 36% in 2027, and uncertainty over investment returns has also intensified volatility in AI assets.

Chart 6: The market expects AI capital expenditure to keep growing in 2027, but at a notably slower pace

Source: Bloomberg, CICC Research

Against this backdrop, adding defensive assets such as cash, Chinese government bonds, and high-dividend stocks is reasonable. Beyond that, according to the analysis above, a cooling of AI trading may weaken the U.S.'s relative growth advantage and dollar demand, and dollar depreciation trades may also help hedge the adjustment pressure on AI assets.

Another advantage of dollar depreciation trades is that their profit scenario is not limited to a weakening AI rally: if the U.S.-Iran situation eases and drives oil prices lower, or if U.S. inflation improves markedly and prompts the Federal Reserve to pivot toward rate cuts, AI assets benefit from improved liquidity, and dollar depreciation trades benefit as well—in which case AI stocks may also rise simultaneously. Therefore, compared with simply reducing AI assets, positioning in dollar depreciation trades can both retain upside exposure to AI gains and provide portfolio protection across multiple scenarios.

The main risk of this hedging logic is a dollar liquidity crisis. If a sharp correction in the AI rally triggers a concentrated sell-off of global assets, investors may rush to liquidate and obtain dollar cash, and the dollar could strengthen and move inversely to equities, rendering the hedge ineffective. However, the current AI rally correction mainly reflects a decline in risk appetite and asset reallocation driven by concerns over investment returns, and has not yet evolved into a disorderly liquidity shock; the dollar and tech stocks are more likely to remain positively correlated. During the recent correction in U.S. tech stocks, the dollar index also pulled back from its October 14 high, consistent with this judgment.

The above analysis mainly focuses on the short-term relationship between exchange rates and equities. Over a longer horizon, even if the AI revolution succeeds, rising equities may not necessarily be accompanied by dollar appreciation, because the "reverse Balassa effect" brings real exchange rate depreciation pressure.

Gold Is an Effective Tool for Positioning in Dollar Depreciation Trades; We Recommend Increasing Allocation

The most direct way to position in dollar depreciation trades is to short the dollar, but foreign exchange trading faces many constraints, and increasing gold allocation may be a more convenient strategy expression. In theory, gold, as an alternative asset to the dollar system, has a basis for negative correlation with the dollar. However, because gold prices are simultaneously influenced by multiple factors such as interest rates, inflation, and safe-haven demand, this relationship has not always been stable historically. But entering 2026, the negative correlation between gold and the dollar has strengthened markedly, with the correlation rising to -81.2%. The dollar and gold have become two sides of the same coin, making increased gold allocation an effective tool for dollar depreciation trades.

Chart 7: Before 2026, the correlation between gold and the dollar was unstable

Source: Wind, World Gold Council, CICC Research

Chart 8: Since 2026, the negative correlation between gold and the dollar has strengthened markedly, with the correlation coefficient reaching -81.2%

Source: Wind, World Gold Council, CICC Research

By comparison, the influence of oil prices and U.S. Treasury yields on gold is more reflected as phased disturbances: within the year, neither the sharp rise nor fall in oil prices persistently dominated gold price movements, and rising U.S. Treasury yields also failed to consistently suppress gold performance.

Chart 9: The oil price decline in May–June did not benefit gold; the oil price surge in August did not suppress gold

Source: Wind, World Gold Council, CICC Research

Chart 10: U.S. Treasury yields accelerated upward after July, but this did not prevent gold from rising in August

Source: Wind, World Gold Council, CICC Research

Besides gold, U.S. Treasuries are also a potential choice for positioning in dollar depreciation trades, but their win rate may be lower than gold's: if dollar depreciation stems from falling inflation and Fed rate cuts, both gold and U.S. Treasuries may benefit; if dollar depreciation stems from rising U.S. debt risk or shaken confidence in the dollar, gold may benefit from demand for alternative assets, while U.S. Treasuries may fall due to rising term premiums.

Historical review also supports this judgment. We reviewed all 91 dollar decline episodes lasting at least 14 days since 2000: gold rose in 84 of them, a win rate of 92.3%, with a median episode return of 5.46%; over the same periods, the proportions of episodes in which 2-year and 10-year U.S. Treasury yields declined were 68.1% and 64.8%, respectively.

Chart 11: During dollar index declines since 2000, gold's win rate of rising was higher than that of other major asset classes

Source: Wind, CICC Research

In summary, we recommend that, in addition to increasing allocation to high-dividend stocks, cash, and Chinese government bonds, investors also increase gold allocation to position in dollar depreciation trades and hedge AI asset risks. The allocation value of U.S. Treasuries may also gradually improve, and we recommend maintaining close attention.

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