YCC CAPITAL Global Asset Allocation August Global Asset Allocation Outlook August 13, 2026 YCC Capital Perspective July reminded investors of an old market truth: when everyone is standing on the same side of the boat, it does not take a storm to make the deck tilt. The month combined renewed Middle East geopolitical stress with a sharp reassessment of crowded AI trades. Former leadership areas corrected violently, deeply oversold assets rebounded, and global markets moved through a broad mean-reversion phase. The more important change, however, was not simply price action. The AI investment narrative itself is maturing. Investors are shifting from asking how much capital companies can spend to asking what that spending actually earns. The market is moving from a capacity story to an efficiency story—from racks, chips and data centers to revenue conversion, margins, cash flow and return on invested capital. That distinction will matter across equities, bonds and commodities through the remainder of 2026. Global Assets: Mean Reversion Takes Control July produced one of the clearest rotations of the year. Brent crude gained 23.6% during the month as renewed U.S.-Iran tensions and restrictions around strategically important shipping routes revived supply concerns. Gold rose 0.8%, ending four consecutive months of declines, while silver stabilized more cautiously. Copper and aluminum remained relatively resilient as AI infrastructure and power-grid investment continued to support demand. Equity performance was more uneven. The Philadelphia Semiconductor Index fell by more than 20% as investors reduced exposure to crowded AI hardware positions. Korea was hit by simultaneous deleveraging in chip shares and regulatory uncertainty. In China, the ChiNext Index fell 23.0% in July, while the Shanghai Composite declined 6.4%. The damage was amplified by leveraged positioning rather than by a comparable deterioration in underlying earnings expectations. Hong Kong moved in the opposite direction, gaining 13.1%, supported by low valuations, dividend exposure and renewed foreign inflows. We would resist extrapolating that relative strength into a broader bullish China thesis. China’s underlying macro picture remains weak: property is still contracting, private-sector confidence is fragile, investment appetite is poor, and policy remains focused on preventing disorder rather than engineering a durable reacceleration. In the United States, the S&P 500 was broadly flat in July while the Nasdaq declined 3.2%. We view the U.S. correction as healthier than alarming. Valuations remain elevated in selective growth segments, but they are nowhere close to the extremes seen during the 2000 technology bubble. The U.S. also retains a stronger combination of household demand, innovation, fiscal support and corporate profitability than most major economies. AI: The Market Now Wants Receipts The first stage of the AI trade rewarded spending. When computing supply was scarce, capital expenditure itself became evidence of future growth. That phase is ending. Cloud companies are now spending at extraordinary levels, and free cash flow is becoming tighter. Investors are therefore demanding proof that each dollar of capital expenditure can be transformed into revenue, earnings and durable cash generation. Companies with strong ROIC are increasingly being rewarded, while firms whose economics depend primarily on perpetual increases in hardware spending face a higher burden of proof. This is a familiar pattern. During the internet buildout, early profits accrued to fiber, networking and infrastructure providers. Over time, economic value migrated toward companies capable of controlling network access, monetizing traffic and building applications on top of that infrastructure. AI may follow a similar path. Falling token costs and improving inference efficiency should gradually shift profit pools toward hyperscale cloud platforms and eventually toward software and application businesses. Hardware remains strategically important, but its beta increasingly depends on the rate of acceleration in AI capital spending. If capex growth merely stays high rather than accelerating, the market can still compress hardware multiples. For investors, this is the difference between buying the shovel manufacturer and buying the business that eventually learns how to turn the mine into cash. China: A Slower Economy With Fewer Easy Policy Answers China’s economy remains in a long-cycle slowdown, even though the pace of deterioration has moderated. New-economy sectors are providing some support, but traditional growth engines continue to weaken. Infrastructure investment fell 2.4% year to date, manufacturing investment declined 1.2%, and real-estate development investment dropped 18.0%. Housing starts, completions and developer funding each recorded declines exceeding 20%. Property is therefore not simply one weak sector; it continues to transmit weakness into construction materials, household appliances, furnishings, local-government finance and consumer confidence. Consumption also remains soft. Trade-in subsidies are producing diminishing returns, while households remain cautious because of uncertainty around employment, property wealth and long-term income. Services are comparatively stronger, but discretionary goods, autos, appliances and dining remain weak. Exports have been a major offset, helped by global demand, AI-related capital expenditure and manufacturing supply-chain strength. Yet reliance on exports creates its own vulnerability because external demand cannot indefinitely compensate for weak domestic balance sheets. Policy remains defensive rather than reflationary. Authorities are emphasizing industrial upgrading, domestic demand stabilization, social support and risk containment. Incremental stimulus is more likely if growth falls materially below targets for multiple quarters or if unemployment, debt stress or an external shock worsens. Until then, policy appears designed to keep the floor from collapsing rather than to lift the ceiling. Bonds: China’s Ultra-Long Duration Still Has Relative Value China’s government-bond market remains supported by weak domestic demand, slowing credit creation and expectations of further monetary accommodation. In July, the curve bull-flattened as long-end yields declined while the short end adjusted more modestly. The 30-year government bond yield fell below 2.2%. Credit spreads generally widened, and three-year AA+ yields in property, steel, coal, power and construction moved to approximately 1.85%, 1.81%, 1.74%, 1.74% and 1.79%, respectively. For the third quarter, we expect yields to remain more likely to fall than rise, but the room for a dramatic rally is limited by countercyclical policy support. A reasonable range is approximately 1.65%-1.70% for the 10-year government bond and 2.15%-2.20% for the 30-year. The most interesting relative-value signal is at the ultra-long end. The 30-year/10-year yield ratio is

July 25, 2026 YCC Perspective Markets rarely move in straight lines. Like traffic during rush hour, capital often slows in one lane before accelerating into another. Over recent weeks, investors have watched precisely this phenomenon unfold. Money has rotated away from some of the market’s biggest AI hardware winners and into areas that had lagged for months—including precious metals. The temptation is to interpret gold’s rebound as the beginning of another powerful bull market. We believe that conclusion is premature. Instead, current price action appears to reflect tactical portfolio rebalancing rather than a decisive change in the macro regime. Gold has undoubtedly regained investor attention, but the structural catalysts that historically sustain major advances remain only partially in place. The distinction matters. Tactical rallies can be profitable, but strategic bull markets require fundamentally different drivers. A Market Defined by Rotation Rather Than Panic Since late June, global equity markets have undergone one of their sharpest style rotations this year. The immediate catalyst was an aggressive correction across AI hardware stocks. Deleveraging in Korean equities combined with widespread profit-taking across semiconductor leaders triggered a broader reassessment of technology positioning. Capital subsequently migrated into several different destinations. In the United States, investors reduced exposure to semiconductor manufacturers while maintaining or increasing allocations to the largest platform companies within the Magnificent Seven. Across Asia, selling pressure spread through Korea, Japan, and technology-heavy Chinese growth indices, while capital simultaneously found its way into Hong Kong technology, defensive sectors, and precious metals. This distinction is important. Markets have not broadly abandoned risk. Instead, investors have become significantly more selective. That difference suggests a rotation rather than a collapse. Precious Metals Suddenly Reappear Against this backdrop, both gold and silver staged an impressive recovery. Beginning around July 20, spot gold advanced roughly 2.6%, while silver—traditionally exhibiting greater volatility—rose approximately 4.5%. Mining equities outperformed even the underlying metals. Major producers experienced double-digit gains within only a few trading sessions, demonstrating how quickly leverage can amplify improving sentiment toward the sector. At first glance, this appears to resemble the early stages of another precious metals bull market. However, market history teaches that sharp rebounds often occur inside longer consolidation phases. The current move still lacks many of the characteristics associated with durable trend reversals. Why Rising Oil Has Not Prevented Gold from Recovering Earlier this year, stronger oil prices became one of the principal headwinds for gold. Higher energy prices reinforced inflation concerns, pushed Treasury yields higher, and encouraged investors to delay expectations for Federal Reserve easing. Those dynamics weighed heavily on precious metals. Recently, however, something changed. Oil prices and U.S. Treasury yields continued rising, yet gold also began appreciating. Rather than signalling an entirely new macro regime, this divergence suggests markets have become less sensitive to incremental inflation fears. Investors increasingly appear to believe that the Federal Reserve has already approached the most hawkish stage of the current policy cycle. When expectations stop becoming more restrictive—even if policy itself remains tight—the headwind facing non-yielding assets like gold becomes considerably less severe. This subtle shift helps explain why precious metals have been able to stabilize despite conditions that previously would have generated significant selling pressure. Technical Signals Remain Inconclusive Despite recent strength, technical confirmation remains limited. Gold has not yet decisively broken the downward trading channel established since late April. Momentum indicators have improved modestly, but they remain insufficient to confirm that institutional investors have broadly repositioned toward the sector. Short-term rallies frequently occur during corrective phases. Only sustained buying accompanied by stronger macro catalysts would transform today’s recovery into a genuine structural uptrend. For now, caution remains warranted. Capital Flows Are Improving—but Only Gradually Flow data paints a similar picture. The world’s largest gold-backed exchange-traded fund, SPDR Gold Shares, experienced a modest increase in holdings during the week covered by the report, rising from approximately 999 tonnes to just over 1,000 tonnes. Likewise, speculative positioning in COMEX gold futures recovered modestly after months of weakness. These developments deserve attention because institutional positioning often leads price trends. Yet the magnitude of these inflows remains relatively small when compared with previous periods that launched sustained bull markets. In other words, investors are beginning to rebuild exposure—but not aggressively. The market is testing conviction rather than displaying it. Central Banks Have Not Yet Accelerated Purchases Another critical pillar supporting gold over recent years has been central-bank demand. Reserve diversification has steadily increased across many emerging economies as monetary authorities sought to reduce long-term dependence on U.S. dollar assets. Recent purchasing data, however, does not indicate a significant acceleration. Official-sector buying remains supportive but broadly consistent with previous trends rather than signalling a renewed wave of accumulation. Without stronger central-bank demand, it becomes more difficult for gold to sustain major upside momentum solely through speculative positioning. Three Catalysts Still Need to Fall Into Place At YCC Capital, we believe three major macro conditions remain essential before gold can enter another lasting secular advance. First, investors must begin questioning AI returns rather than merely AI valuations. Markets have started debating whether spending levels across AI infrastructure are economically justified. This debate has intensified as hardware stocks corrected sharply. Yet capital expenditure announcements continue to suggest that hyperscale technology companies remain committed to expanding AI investment. Google’s decision to modestly increase its 2026 capital expenditure guidance reinforced confidence that the industry’s investment cycle has not yet ended. Meanwhile, Micron shares recovered following the announcement, indicating that fundamental investors continue viewing AI infrastructure as a long-duration growth opportunity rather than a speculative bubble. The next major test will come from earnings and investment plans released by Microsoft, Meta, and Amazon. Should these companies maintain or increase capital expenditure guidance, confidence in the AI investment cycle would likely strengthen once again. That outcome would reduce demand for defensive allocations such as gold. Second, expectations for Federal Reserve easing must strengthen. Although markets have become less concerned about additional tightening, they have not yet embraced an aggressive easing cycle. Current pricing suggests only modest