After the Sharp Rally, HALO Assets May Face Divergence

Since March, A-shares sector rotation has accelerated, with technology growth maintaining high-level fluctuations. HALO assets (companies characterized by heavy assets and low obsolescence rates) have further attracted capital.

According to Wind data, as of March 16, out of 31 Shenwan first-level industry indices, seven have risen since March. Among them, coal, electrical equipment, and utilities indices increased by 6.86%, 4.67%, and 4.37%, respectively, making them the best-performing sectors in the period.

Looking at a longer timeframe, from the beginning of the year to now, coal, oil and petrochemicals, basic chemicals, and electrical equipment indices have risen by 23.47%, 22%, 16.63%, and 14.68%, leading the various industry sectors.

In specific segments, the Wind electrical grid and power generation equipment indices hit record highs on March 11 and March 13, respectively.

After a rapid surge, institutions are beginning to assess the sustainability of the HALO trend.

Some believe that 2026 is neither a technology-dominant cycle nor a cycle-dominant technology cycle; the “new and old coexisting” approach is more rational and pragmatic compared to HALO. Investors should be cautious of the limitations of HALO strategies.

HALO Trading Booms

HALO is an abbreviation for “Heavy Assets, Low Obsolescence.”

Since 2026, concerns about AI innovation or disruptive business models of knowledge-intensive companies have increased, coupled with rising global resource prices, leading to a rapid popularity of HALO trading overseas.

As an investment strategy, the core logic of HALO trading is to find and invest in physical assets that AI cannot replace and that are highly dependent on, thus hedging against uncertainties from technological iteration.

Breaking down HALO assets, senior strategist Wang Yang of China Merchants Fund explained, “Heavy assets” refer to business models built on substantial tangible capital, with high barriers to replication. Their moat comes not only from large capital investments but also from long construction cycles, strict environmental and regulatory oversight, and complex engineering. For example, building a nuclear power plant or a transnational oil and gas pipeline makes it nearly impossible for competitors to replicate in the short term.

“Low obsolescence” means that the economic value of these assets can span multiple technological cycles and are not easily overturned by AI or other new technologies. These assets fulfill rigid societal needs such as power transmission, waste management, and basic material supply, with physical forms and core functions remaining stable over decades.

In the A-share market, since the start of the year, capital has also shown a trend of flowing into HALO assets.

Wind data shows that as of March 16, ten first-level Shenwan industry indices have increased by over 10% since the beginning of the year. Among them, coal, oil and petrochemicals, basic chemicals, and electrical equipment have performed well, ranking second to fifth in the 31 industry index gains.

Meanwhile, indices for environmental protection, utilities, and non-ferrous metals rose by 12.70%, 12.58%, and 10.96%, ranking seventh, eighth, and tenth among all Shenwan indices.

“When a sector’s technological barriers are leveled by AI, its long-term profitability is questioned. Capital is re-evaluating what truly constitutes a moat—assets that are difficult to quickly build, technologically irreplaceable, and indispensable to daily life and industry,” said a senior person at Galaxy Fund. This is the essence of HALO—it’s not just about “buying heavy assets,” but “buying hard assets that AI cannot replace.”

However, some institutions believe that the popularity of HALO trading is driven by resource price increases.

Lin Rongxiong, chief strategist at Guotou Securities, pointed out in a recent report that the surge in HALO trading is not primarily due to AI technological disruptive innovation but is influenced by rising prices. The global increase in resource prices has stabilized PPI, leading to differentiation between tech and cyclical stocks, and providing more excess return space for commodities.

Mid-term Logic and Allocation Directions

After a rapid rise earlier, the HALO trend may enter a phase of differentiation.

“Currently, influenced by domestic risk appetite, the overall valuation of HALO assets is at a historically high level. Some industries are still in capacity deployment cycles, and industry prosperity remains on the left side of the cycle. As market risk appetite declines, valuations may face digestion pressure,” said Zheng Si’en, senior researcher at China-Europe Fund’s macro research team.

Jinying Fund also noted that the US-Iran conflict has accelerated the overvaluation of upstream cyclical assets, which may cause short-term fluctuations in HALO trading. The improvement in market risk appetite and the upcoming Q1-Q2 earnings season could benefit assets related to AI prosperity.

From a medium-term perspective, “HALO trading reflects the market’s pricing of long-term AI concerns (such as 2028). These concerns may not materialize within 2026, but cyclical manufacturing assets with performance support will gradually differentiate, with the market focusing on targets that can deliver short-term results,” the analyst added.

Additionally, some institutions suggest that the effectiveness of the HALO strategy is maximized only during certain periods.

Wang Yang believes that the HALO strategy is not a universal truth but is deeply tied to specific industry cycle stages.

He explained that currently, AI technology has achieved breakthroughs but has not yet fully dominated the economy. Traditional industries are experiencing a “rebirth” due to new demands. This transitional phase—where new technological breakthroughs and emerging industries are not yet dominant—is considered the optimal period for HALO’s effectiveness. During this time, HALO assets benefit from high dividends as a defensive measure, valuation reappraisal from “low-dividend volatility” to “dividend growth,” and performance elasticity driven by new AI demands.

For future A-share deployment, HALO remains a key theme, but investors should carefully identify truly valuable assets.

Wang Yang recommends focusing on three main areas: first, electrical equipment and grids—AI computing power demand is exponentially increasing, making grid upgrades and power supply security global priorities. Second, strategic resources (such as copper and certain rare metals)—core raw materials for AI hardware and global electrification, with supply rigidity and emerging demand supporting prices. Third, high-end manufacturing and export-oriented industrial chains with global advantages, including engineering machinery and specialized equipment.

Lin Rongxiong also noted that 2026 is neither a technology-dominant cycle nor a cycle-dominant technology cycle; the “new and old coexisting” approach is more rational and pragmatic than HALO. He emphasized that at this stage, it is not suitable to bet heavily on one side or to switch repeatedly; portfolio management is the key to success.

He summarized in a report that the core of “new and old coexisting” is short-term positioning in the “Four Kings”: resource-based non-ferrous and cyclical chemicals, AI applications and electrical equipment, and export-oriented engineering machinery and specialized equipment. The key to allocation is managing the “Four Rebalancings”: first, rebalancing between new and old; second, AI technology moving downstream; third, exports moving upstream; fourth, resource commodities returning to their market attributes and reducing financial attributes.

On the risk side, Wang Yang advises caution regarding the limitations of HALO strategies. Many HALO assets, such as resource commodities, are highly correlated with the economic cycle. If global economic growth underperforms, demand may decline, impacting earnings. Additionally, if the Federal Reserve continues easing monetary policy, some funds may flow back into growth stocks, exerting pressure on HALO strategies.

He also pointed out that not all “heavy assets” have “low obsolescence.” Be wary of industries in overcapacity cycles with deteriorating competitive landscapes—they may be “heavy” but lack moats.

CITIC Securities’ research indicates that HALO trading mainly reflects stage-specific style rotation rather than a new long-term growth paradigm. When AI has no clear new direction, HALO is worth attention; once AI expansion becomes clear, capital will shift back to high-growth assets.