Core Viewpoint - The article argues that the Chinese yuan is not significantly undervalued, challenging the traditional view that assesses exchange rates primarily through commodity pricing, which is seen as disconnected from modern financial realities [2][4][6]. Group 1: Exchange Rate Assessment Perspectives - The mainstream economic view (neoclassical) evaluates exchange rates based on commodity pricing, suggesting that trade surpluses should lead to currency appreciation [4][5]. - In contrast, post-Keynesian economics emphasizes the role of capital flows and expectations in determining exchange rates, arguing that asset prices are more influential than traditional economic indicators [6][7]. Group 2: Financial Cycles and Exchange Rates - Financial cycles significantly impact the relationship between current accounts and exchange rates, with evidence showing that during financial upturns, trade deficits widen, while downturns lead to narrowing deficits [9][11]. - The article highlights that recent trends in China's trade surplus and yuan depreciation are results of financial cycle adjustments, rather than direct causation between trade surplus and currency value [13][15]. Group 3: Real Estate Market Dynamics - The investment attributes of real estate in China have diminished, with a notable decrease in the correlation between housing prices and transaction volumes, indicating a shift towards consumption attributes [30][32]. - The article discusses how changes in the real estate market affect the financial cycle, influencing the motivations for asset allocation between real estate and equities [34][36]. Group 4: Income and Economic Growth - The relationship between income growth and economic performance is emphasized, with projections indicating that if nominal GDP growth rebounds, disposable income growth will also improve [40][41]. - The article suggests that understanding income trends is crucial for predicting real estate market movements and, consequently, exchange rate dynamics [41].

Strategy - The active performance of the Hong Kong stock market in both primary and secondary markets is closely linked to liquidity, which plays a more significant role than in the A-share market [3] - The overall liquidity in the Hong Kong market has been loose this year, driven by macroeconomic weakness and asset scarcity, leading to increased southbound capital inflows and more companies listing in Hong Kong [3] - Looking ahead, the liquidity trend in the Hong Kong market may face tightening pressures in Q3, with a potential demand for funds exceeding 300 billion HKD for IPOs and placements, while the supply of funds will depend on the "profit-making effect" [3] Macroeconomy - The recent rebound of the US dollar index and the weakening of the euro raises questions about whether this is a short-term phenomenon or a structural reversal [6] - The new classical framework suggests that the current account is the main determinant of exchange rates, while the post-Keynesian view emphasizes capital flows as the fundamental force affecting exchange rates [6] - In the short term, the significant increase in net supply of US Treasury bonds may lead to further depreciation of the dollar, while the euro may appreciate [6] Strategy - The current stock-bond relationship differs from historical patterns, with the recent stock market rally driven by bank stocks and small-cap stocks, leading to a "bull market in stocks and stable bonds" [9] - This shift indicates that liquidity, rather than growth expectations, is the primary driver of the stock-bond relationship, suggesting lower risk appetite and limited negative impact on the bond market [9] - It is recommended to maintain a conservative asset allocation until uncertainties regarding tariffs are resolved, while continuing to overweight high-dividend stocks and bonds [9] Strategy - Five significant changes in the funding landscape of the A-share market are identified, including the restructuring of monetary order benefiting RMB assets, an increase in the proportion of individual investors, and improved market attractiveness due to asset scarcity [12] - The funding structure in the A-share market is improving, leading to a positive feedback loop in the funding environment, while many institutional investors are at historically low positions, indicating potential bullish sentiment [12] - While the mid-term market trend is determined by fundamentals, the influence of capital flows may temporarily exceed that of fundamentals, suggesting a relatively positive outlook for the second half of the year [12] Stablecoins and Financial Markets - Stablecoins are seen as a potential new infrastructure, with an analysis of the incentive mechanisms for various participants and their potential impact on financial markets and the international monetary system [15] - Issuing offshore RMB stablecoins is considered a priority for China in participating in the development of stablecoins, although the success of RMB internationalization ultimately depends on its legal and functional anchors [15]