Deflation Wealth Battle: 2025 Market Trends & Strategies

Prices continue to fall, consumer confidence remains sluggish, and corporate profits are shrinking. Deflation has become the core challenge for the global economy in 2025.

Deflation Status: Economic Pressure Behind The Data

According to data from the National Bureau of Statistics of China, in April 2025 the CPI fell 0.1% year-on-year, and the Producer Price Index (PPI) experienced 15 consecutive months of decline, marking the longest contraction cycle in nearly a decade. (Source: National Bureau of Statistics of China, “April 2025 Consumer Price Index”)

This price decline shows three major characteristics:

●    Consumer Side: Data from the China Association of Automobile Manufacturers shows that despite an average price cut of over 15% for mainstream brands, sales still fell by 8%. (Source: “Q1 2025 Automotive Market Analysis Report”)

●    Production Side: According to an announcement by the Office of the United States Trade Representative, tariffs on Chinese goods reached as high as 125%, causing about 50% of exports to the US to be redirected to the domestic market. (Source: USTR, “2025 Tariff Adjustment Memorandum”)

●    Asset Side: A report by JLL indicates that the office vacancy rate in prime business districts of Beijing and Shanghai reached 12.6%, with landlords cutting prices by 30% but still struggling to find tenants. (Source: “Q1 2025 China Commercial Real Estate Market Review”)

Morgan Stanley’s analysis points out that breaking deflation requires completing three stages: debt restructuring, consumption stimulus, and corporate confidence recovery. The current 700 billion yuan consumer subsidy policy has only achieved 40% progress, and full recovery may not occur until 2026. (Source: Morgan Stanley, “2025-2026 China Economic Outlook”)

Asset Allocation Logic In A Deflationary Environment

Core Principle: Value Preservation First, Liquidity Is King

In an environment of widespread asset price declines and passive appreciation of currency purchasing power, allocation should focus on three key attributes.

High-Dividend Assets

Consumer staples (food/pharmaceuticals) show rigid demand, with food-related CPI rising 0.8% against the trend; utility stocks have an average dividend yield of 4.5%. (Source: Shanghai Stock Exchange, “2025 Listed Companies Dividend Report”)

Be cautious of potential risks from local government subsidy cuts.

Cash And Cash-Equivalent Instruments

Money market funds maintain an annualized yield of 2%-3%, with a recommended allocation ratio increased to 30%-50% of total assets.

Cash reserves not only hedge against volatility but also capture mispricing opportunities—money market fund规模 grew by 1.2 trillion yuan in Q1 2025, showing a clear trend of capital seeking safety. (Source: Asset Management Association of China data)

Policy-Driven Sectors

Infrastructure investment increased by 8.7% year-on-year (Source: National Bureau of Statistics data), and the second phase of large-scale wind and solar power base projects is planned to add 200-300 million kilowatts of installed capacity, driving demand for power grid upgrades.

The smart grid sector is growing faster than the industry average, with the market size surpassing 70 billion yuan in 2024. (Source: China Commercial Industry Research Institute forecast)

High-Risk Warning

The technology sector’s goodwill impairment increased by 35% year-on-year (Source: CSRC data), and export-oriented companies’ gross profit margins dropped by 4.2 percentage points due to tariff impacts, which should be strictly avoided.

New Forex Market Trends In A Deflationary Cycle

Policy Divergence Creates Arbitrage Opportunities

The International Monetary Fund (IMF) pointed out that the divergence of monetary policies among major economies has intensified interest rate differential volatility. In Q1 2025, the USD/JPY exchange rate volatility reached 15%, hitting a three-year peak. (Source: Bloomberg Forex Volatility Index)

In such market conditions, liquidity peaks during economic data releases become key opportunity points.

Cost Control Enhances Survival Capability

Low friction costs are the key threshold for profitability during deflationary periods:

●    Use overnight interest calculation tools to avoid negative-interest currency pairs and prevent hidden costs from eroding returns

●    Strategy verification path: test trading logic in a deflationary environment through a demo account, then execute actual deployment with a trading account.

Frequently Asked Questions FAQ

Q: How can small capital balance defense and returns?

A: Use a tiered position management approach: allocate 70% of core positions to money market funds and government bonds, and use 30% satellite positions with 1:2000 flexible leverage to capture forex swing opportunities. Avoid concentrated exposure to a single asset and keep cash liquidity to handle extreme volatility.

Q: Does gold still hold an allocation value during deflation?

A: Value logic: Standard Chartered forecasts gold prices to rise to 2,900 USD/oz by 2026, making it a safe-haven asset to hedge against currency appreciation uncertainty.

However, note that gold volatility may increase during deflationary periods, with the largest monthly drawdown in April 2025 reaching 8%.

Q: Why are technical tools more necessary during deflation?

A: Liquidity decline leads to price transmission failure. Algorithmic trading on the MT5 platform can strictly execute orders during inactive periods, overcoming emotional decision-making.

Empirical evidence shows that AI strategies outperformed manual trading by 23% during the early stage of deflation in 2024, with significant advantages during highly volatile periods such as data releases.

Applying AI analysis tools in a trading account on Ultima Markets can transform technical advantages into survival competitiveness in a deflationary environment.

Conclusion

The wealth protection battle in a deflationary cycle tests both respect for risks and sensitivity to opportunities. By maintaining liquidity, anchoring policy dividends and rigid demand, you can stay steady amid volatility and wait for the turning point of the cycle to seize breakthrough opportunities.

Start Trading