Shift in Interest Rate Outlook? Asset Allocation Strategy to Avoid Stock Market Crash

Yesterday (the 12th), Taiwan's stock market continued its rebound pattern, but while the index rose, trading volume did not expand accordingly, showing a clear 'price increase, volume decrease' phenomenon. However, after previous large-scale margin debt liquidation, market positions have become relatively clean. Combined with ATR continuing to decline, the current situation resembles gradual bottom-building during consolidation rather than the end of a bull market. The true key in the market lies in accelerated capital rotation.

Strength was seen in TSMC, Hon Hai, Nan Ya Plastics, and Jentec, with thermal solutions, silicon wafers, and CPO sectors subsequently taking the lead. In memory stocks, a seesaw effect emerged as Nanya Technology paused while Phison strengthened, indicating that main capital has not exited but is reallocating across different groups.

In the short term, the market awaits tonight's CPI release. If inflation does not significantly exceed expectations, Taiwan stocks still have room for further gains. However, if the index approaches the 46,650-point resistance zone without corresponding volume expansion, investors should consider profit-taking, preserving cash, and waiting for the next pullback before redeploying.

Although recent AI company earnings generally exceeded market expectations, driving a technical rebound in global financial markets, the investment sentiment has changed significantly from the beginning of the year. Previously, markets enthusiastically chased any AI-related stories; now, capital has become selective. Whether a company possesses stable orders, continuous revenue growth, and healthy cash flow has become the key determinant of stock performance. This indicates that the AI market cycle hasn't ended but has formally entered a 'real capability' phase.

On the other hand, the US July non-farm payroll unexpectedly decreased by 23,000, far below the market's initial forecast of an 83,000 increase. May and June data were collectively revised downward by over 100,000, indicating that the labor market is cooling faster than expected. Slowing employment and wages have led markets to drastically reduce the probability of a Fed rate hike in September. Short-term US Treasury yields have retreated, and US stock futures rebounded accordingly. However, inflationary pressures haven't fully dissipated. Energy prices and geopolitical factors could still push up prices, leaving the Fed facing a dilemma of 'slowing economy but persistent inflation.' This suggests that the most intense valuation correction phase for AI stocks may have temporarily ended, but market volatility won't disappear immediately. Instead, the market is more likely to enter a new phase of 'fundamental support with increased volatility.'

Under these conditions, the risk of single-stock concentration has significantly increased, and the importance of stock-bond asset allocation has regained market attention. Reviewing the market crash from June 23 to July 31, the weighted index performed at -8.4%. During this period, many popular ETFs also experienced significant corrections: Yuanta Taiwan 50 (0050) fell -6.5%, and even high-dividend ETFs couldn't escape this crash—for example, Cathay Sustainable High Dividend (00878) showed negative returns of -4.56%.

Actively managed ETFs that attracted significant market attention this year, such as Uni-President Taiwan Equity Growth (00981A) and Uni-President Upgrade (00403A), fell -17.3% and -16.6% respectively. However, during this period, stock-bond balanced ETFs demonstrated relatively outstanding resilience. For example, KGI Dual-Core Income Balanced (00981T) declined only -3.3%.

Further observing maximum drawdowns, 0050 reached -15.37%, even 00878 hit -9.88%, and 00981A and 00403A exceeded -25%. In contrast, the stock-bond balanced 00981T only reached -5.37%. This shows that during periods of severe market volatility, 00981T not only experienced smaller declines but also significantly reduced psychological pressure for investors holding the fund.

From an asset allocation perspective, during high-volatility phases, 'survivability' often matters more than earning a few extra percentage points in the short term. Stock-bond allocation strategies are essential tools for reducing volatility and stabilizing asset curves.

The reason 00981T demonstrates relatively strong resilience lies in its '70% bonds, 30% stocks' dual-core structure.

The bond portion primarily invests in USD-denominated corporate bonds issued by enterprises in global developed countries, averaging around BBB credit rating with maturities over ten years. Weighting is based on yield, with holdings spanning telecommunications, finance, energy, insurance, technology, raw materials, and utilities. Some bonds even carry coupon rates as high as 6.7% to over 10%, providing a stable income source.

The stock portion selects from Taiwan's top 25 market-cap companies, balancing market capitalization and dividend yield, covering AI tech leaders and financial blue chips, allowing the product to maintain participation in capital appreciation during Taiwan stock rebounds.

In other words, 00981T isn't merely an income-focused product but a balanced strategy of 'using bonds for defense and Taiwanese equities for growth.' When the market rises, the stock portion provides capital gains; when the market falls, bond income acts as a cushion, reducing overall net value volatility.

Besides resilience, another reason 00981T has recently gained market attention is its increasing dividend yield. Since initiating distributions this year, its annualized payout rate has risen from over 5% to approximately 7.1%, surpassing most US Treasury and investment-grade bond ETFs, offering relatively attractive cash flow in the current market environment.

Comparing one-year dividend yields, 00981T's ~7.1% exceeds Yuanta US Bond (00679B)'s 4.17%, Cathay US Bond (00687B)'s 4%, Yuanta Investment Grade Bond (00720B)'s 5.6%, Cathay Investment Grade Bond (00725B)'s 5.7%, and Capital Investment Grade Bond (00937B)'s 5.86%.

During high-interest-rate and high-stock-volatility phases, investors simultaneously seek 'income' and 'stability,' and 00981T meets both demands.

For investors who wish to avoid excessive net value drawdowns during market crashes while continuously participating in Taiwan stock and long-term AI growth, mixed stock-bond ETFs provide a more balanced choice. If the Fed's policy gradually shifts toward neutrality in the future and bond yields retreat, bond prices themselves could generate additional capital gains, giving 00981T further total return potential beyond dividends.

In the previous market cycle, I guided members to lock in profits at peak levels; after Taiwan stocks rapidly corrected, we redeployed capital into memory, cooling, and Taiwan 50 Bull 2, capturing the rebound once again!

Look back—you'll see others still waiting to break even on Kingboard or GlobalWafers, while we've already pocketed profits repeatedly.

True excellence isn't shouting 'buy' every day, but having the courage to attack when it's time, knowing when to retreat, and most importantly, having the courage to redeploy capital into truly strong areas after a downturn!

Will you keep your capital stuck in stagnant stocks, or follow the footsteps of the consistently strong?

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The securities individually recommended by our company have no improper financial interests. Past performance does not guarantee future profits. Investors should make independent judgments, conduct careful evaluations, and bear their own investment risks.