Summary of Key Points from Conference Call Records Industry Overview - The conference call discusses the foreign exchange market and its dynamics, focusing on the impact of various factors on currency fluctuations, particularly the US dollar and the Chinese yuan. Core Insights and Arguments 1. **Factors Influencing Exchange Rates** Exchange rate fluctuations are influenced by multiple cross-border capital flow factors, including trade in goods and services, and investment behaviors. A single theory cannot fully explain these changes, necessitating a combination of short-term technical analysis, mid-term macro frameworks, and long-term valuation models [1][3][4]. 2. **Short-term Analysis of the US Dollar** In the short term, technical indicators are crucial. The US dollar has broken below its three-year trading range, indicating a bearish trend with limited rebound potential. Weekly momentum indices can help identify short-term overbought or oversold conditions [1][5][7]. 3. **Mid to Long-term Dollar Valuation** The dollar should be viewed as having dual attributes of assets and liabilities. Its value is influenced by the relative strength of the US economy, financial sentiment, and conditions. Long-term valuation models analyze the relative prices of goods, services, and assets between countries [1][6][12]. 4. **Impact of Market Liquidity on Exchange Rates** Market liquidity significantly affects exchange rates. A tight liquidity environment can lead to a rebound in the dollar. The SOFA 99 minus SOFA metric is used to gauge liquidity conditions [1][9]. 5. **Geopolitical and External Factors** Geopolitical situations, supply chain issues, and tariff policies can influence market trading themes and, consequently, exchange rates. For instance, easing tensions in the Russia-Ukraine conflict benefited the euro [1][11]. 6. **Chinese Yuan Dynamics** The Chinese yuan's exchange rate is affected by trading themes, market signals, and central bank policies. The yuan's valuation is influenced by cross-border capital flows, with a current account surplus but a capital account deficit [2][17][24]. 7. **Seasonal Behavior of the Yuan** Seasonal factors significantly impact the yuan's exchange rate, with summer months typically seeing depreciation due to increased foreign currency purchases for dividends, while autumn and winter often see appreciation as exporters convert foreign earnings [20]. 8. **Interest Rate Differentials** Interest rate differentials play a crucial role in forex trading, with potential narrowing of the US-China interest rate gap positively impacting the yuan [18][19][26]. 9. **Effective Exchange Rate of the Yuan** The effective exchange rate of the yuan reflects its value against a basket of currencies. Despite appreciation against the dollar, the yuan has depreciated against other currencies, indicating a downward trend in its effective exchange rate [27]. Other Important but Overlooked Content - The relationship between exchange rates and risk currencies (like GBP, AUD) versus safe-haven currencies (like JPY, CHF) is highlighted, noting that market risk appetite can shift these dynamics [1][8]. - The importance of monitoring external risk events, such as US monetary policy changes and geopolitical developments, is emphasized as they can significantly impact currency valuations [21][22]. - The discussion includes the potential for the dollar to remain overvalued, which could necessitate adjustments in exchange rates to restore competitiveness for US goods and services [15]. This comprehensive analysis provides insights into the complexities of the foreign exchange market, emphasizing the interplay of various economic, geopolitical, and technical factors that influence currency valuations.

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]