727 FinanceThe AI dollar effect is reshaping global stock markets, with the dollar becoming the dividing line for market divergence and the allocation value of gold hedging strategies coming to the fore.
Authors: CICC Asset Allocation: Li Zhao, Yuan Shuai, Yang Xiaoqing, Wang Tianyi
Against the backdrop of a restructuring international monetary order, we believe that "de-dollarization" remains the prevailing trend and that the US dollar faces long-term depreciation pressure. However, since 2026, the dollar's movements have been temporarily strong. In addition to inflationary pressure triggered by geopolitical conflicts, the AI rally may provide key support. On the one hand, cross-border transactions in AI industry chains such as advanced chips, cloud services, and computing power are often settled in US dollars, and industrial expansion may increase dollar demand in stages, 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 increase in real GDP in 2026 is expected to come from AI. Economic growth resilience creates conditions for the Federal Reserve to raise rates, and rising US Treasury yields push the dollar higher. However, for economies that benefit less from AI, tighter external financing conditions and capital outflow pressure brought by a stronger dollar will instead drag on economic and market performance.
Under the influence of the above mechanisms, the US dollar has become the dividing line for divergent global equity market performance in the AI revolution: since 2026, the US, Japanese, and South Korean stock 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 limitedly from AI, have been negatively correlated with the dollar.
Chart 1: Since 2026, the Nikkei 225 Index has been positively correlated with the US dollar
Source: Wind, CICC Research Department
Chart 2: Since 2026, the KOSPI Index has been positively correlated with the US dollar
Source: Wind, CICC Research Department
Chart 3: Since 2026, the Hang Seng Index has been negatively correlated with the US dollar
Source: Wind, CICC Research Department
Chart 4: Since 2026, the Indian stock market has been negatively correlated with the US dollar
Source: Wind, CICC Research Department
Chart 5: Since 2026, the correlation between the US dollar index and major asset movements: the dollar has become the "dividing line" for global equity market divergence
Note: Data for various assets are as of October 8.
Source: Wind, CICC Research Department
Although the AI revolution is still in its early stages, the market has begun to worry about slowing growth at leading vendors and whether future returns can cover current large-scale investment. The market expects the year-on-year growth rate of capital expenditure by the US AI Magnificent Seven 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 continue growing in 2027, but at a markedly slower pace
Source: Bloomberg, CICC Research Department
Against this backdrop, increasing allocations to defensive assets such as cash, Chinese bonds, and high-dividend stocks is reasonable. In addition, based on the analysis above, a cooling of AI trades may weaken the United States' relative growth advantage and dollar demand, and a dollar depreciation trade is also expected to hedge the adjustment pressure on AI assets.
Another advantage of the dollar depreciation trade is that its profit scenarios are not limited to a weakening AI rally: if easing US-Iran tensions push oil prices lower, or if US inflation improves significantly and prompts the Federal Reserve to shift toward rate cuts, AI assets would benefit from improved liquidity and the dollar depreciation trade would benefit as well, while AI stocks may also rise simultaneously. Therefore, compared with simply reducing AI assets, positioning for a dollar depreciation trade can both retain exposure to AI upside and provide portfolio protection under multiple scenarios.
The main risk to this hedging logic is a dollar liquidity crisis. If a sharp adjustment in the AI rally triggers concentrated global asset selling and investors rush to liquidate and obtain dollar cash, the dollar may strengthen and move inversely to equities, rendering the hedge ineffective. However, the current adjustment in the AI rally mainly reflects a decline in risk appetite and asset reallocation caused by concerns over investment returns, and has not yet evolved into a disorderly liquidity shock; the dollar and technology stocks are therefore more likely to be positively correlated. During the recent adjustment in US technology stocks, the dollar index also retreated from its October 14 high, consistent with this judgment.
The above analysis mainly focuses on the short-term relationship between exchange rates and equity markets; over a longer horizon, even if the AI revolution succeeds, stock gains may not necessarily be accompanied by dollar appreciation, because the "reverse Balassa effect" brings pressure for real exchange rate depreciation.
The most direct way to position for a dollar depreciation trade is to short the dollar, but foreign exchange trading faces many restrictions, and increasing gold allocations may be a more convenient strategic expression. Theoretically, gold, as an alternative asset to the dollar system, has a basis for negative correlation with the dollar, but because gold prices are also affected by multiple factors such as interest rates, inflation, and safe-haven demand, this relationship has not always been stable historically. However, 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 the dollar depreciation trade.
Chart 7: Before 2026, the correlation between gold and the dollar was not stable
Source: Wind, World Gold Council, CICC Research Department
Chart 8: Since 2026, the negative correlation between gold and the dollar has strengthened markedly, with a correlation coefficient as high as -81.2%
Source: Wind, World Gold Council, CICC Research Department
By contrast, the impact of oil prices and US Treasury yields on gold is more reflected in temporary disturbances: sharp rises and falls in oil prices during the year did not consistently dominate gold price movements, and rising US 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 Department
Chart 10: After July, US Treasury yields accelerated upward, but this did not prevent gold from rising in August
Source: Wind, World Gold Council, CICC Research Department
In addition to gold, US Treasuries are also a potential choice for positioning in the dollar depreciation trade, but the win rate may be lower than that of gold: if dollar depreciation stems from falling inflation and Federal Reserve rate cuts, both gold and US Treasuries may benefit; if dollar depreciation stems from rising US debt risk or shaken dollar credit, gold may benefit from demand for alternative assets, while US Treasuries may fall due to rising term premiums.
Historical review also supports the above judgment. We reviewed all 91 dollar depreciation periods lasting at least 14 days since 2000; gold rose 84 times, with a win rate of 92.3% and a median period return of 5.46%; over the same periods, 2-year and 10-year US Treasury yields fell 68.1% and 64.8% of the time, respectively.
Chart 11: During US dollar index declines since 2000, gold's win rate has been higher than that of other major asset classes
Source: Wind, CICC Research Department
In summary, we recommend that, in addition to increasing allocations to high-dividend stocks, cash, and Chinese bonds, investors increase gold allocations to position for the dollar depreciation trade and hedge AI asset risk. The allocation cost-effectiveness of US Treasuries may also gradually improve, and we recommend keeping close watch.