CITIC Securities has released a research report stating that a "substantial improvement" in inflation and the absence of inflationary pressure spreading are likely two key preconditions for the Federal Reserve to halt its rate hikes. This suggests the Fed's tightening cycle won't come to an abrupt end, and the September rate increase should not be viewed as the final piece of negative news.

Given the ongoing risk of further Fed rate hikes, assets offering safety and certainty—such as Chinese bonds, commodities, and undervalued equities—deserve greater attention.

First, Chinese bonds primarily track China's own monetary policy rather than the Fed's, meaning that as long as Beijing maintains a moderately accommodative stance, these bonds stand out as a typical safe-haven asset.

Second, until U.S.-Iran tensions ease, supply-demand dynamics for commodities like energy and metals remain tight, and the current macroeconomic backdrop of global contraction and spreading inflation also points to attractive opportunities in commodity allocation.

Third, valuation dispersion across A-share sectors is significant, and a shift in global liquidity is likely to push valuations toward greater balance between industries.

Here are the key takeaways from CITIC Securities: The September rate hike makes it clear that inflation is the core contradiction in current Fed monetary policy. Under this inflationary pressure, the firm expects the rate hike process will not stop abruptly.

Since the start of the year, U.S. nonfarm payrolls and the unemployment rate have largely moved in a narrow range, while job openings and wage growth metrics remain subdued. The labor market hasn't deteriorated further, but it's also hard to say it has clearly stabilized or rebounded.

With lingering concerns about employment, the Fed's decision to begin a tightening cycle in September proves that controlling inflation is the more central goal of current monetary policy. At the September meeting, Fed Chair Warsh emphasized that what he set wasn't specific monetary policy decisions but rather monetary policy discipline, and that his decisions were driven not by single-month data but by the trend of data changes.

Therefore, with U.S.-Iran relations far from showing signs of easing and U.S. inflation readings facing sustained high pressure with risks of further spread, the firm expects the rate hike cycle will not end abruptly.

Before the September hike, investors had already priced in potential rate hike risks, but under the base case, this increase may not be the preemptive or "dovish hike" some investors expected. The pricing of rate hike risks by major asset classes in terms of depth and duration may also be insufficient.

Although tools like FedWatch indicated investor expectations of a September hike before the meeting, asset pricing of rate hike risks may not be fully adequate. On one hand, Warsh repeatedly stressed at the meeting the importance of seeing "substantial improvement" in inflation and ensuring price changes don't spread across sectors—likely key conditions for the Fed to stop hiking.

Under the base case, the U.S.-Iran conflict may not be resolved quickly, pointing to the core of this hike being to control inflation trends and achieve the Fed's inflation target, rather than merely following market expectations or placating investors. The September hike is just the start of a rate cycle, not the preemptive or "dovish hike" some anticipate; the rate increase landing shouldn't be seen as the clearing of negative news.

On the other hand, unlike the starting points of past tightening cycles, current valuations of major assets, represented by global equities, are notably higher. In a high-valuation environment, various assets may be more sensitive to potential sustained Fed rate hike risks.

Since the July meeting, apart from U.S. Treasuries, most other asset prices and valuations have seen little change, indicating a possible gap between how assets price in rate hike risks and investor expectations.

The risk of continued Fed rate hikes will be a major medium-term pricing theme for markets, making assets with safety and certainty more valuable during a tightening cycle. The combination of broadly high asset valuations and the Fed's ongoing rate hike risk creates an "impossible trinity" of allocation space, volatility, and odds, so investors should focus on safe, certain assets.

The firm recommends three key opportunities.

First, Chinese bonds mainly follow China's monetary policy, not the Fed's, meaning that with moderate easing in place, Chinese bonds represent a typical safe asset.

Second, before U.S.-Iran tensions ease, supply and demand for commodities like energy and metals will remain tight, and the current macro environment of global contraction and spreading inflation also highlights commodity allocation opportunities.

Third, valuation gaps across A-share industries are pronounced, and a shift in global liquidity should push sector valuations toward a balance.

Risk factors include the duration and intensity of the U.S.-Iran conflict exceeding expectations, stronger-than-anticipated Fed rate hikes, better-than-expected U.S. labor market performance, and faster-than-expected inflation spread.