Group 1 - The report by DBS Group indicates that the recent decline of the US dollar may halt and potentially reverse due to rising long-term US Treasury yields and a cooling expectation for Federal Reserve rate cuts [1] - The demand for the recent 30-year US Treasury auction was weak, contributing to higher long-term US Treasury yields, which supports the dollar [1] - Market expectations for a Federal Reserve rate cut in December have decreased from 66% to 50%, with recent comments from Fed officials showing caution regarding rate cuts [1] Group 2 - The report highlights that while the USD/JPY exchange rate remains below the psychological level of 155, risks are increasing, and a sustained breach could lead to more verbal interventions from Japanese authorities [1] - Concerns regarding Japan's fiscal budget may undermine the credibility of warnings against foreign exchange interventions, with a potential for market shocks similar to the "Truss-like" incident in the UK [2] - The USD/CNH has fallen below 7.10, supported by easing US-China trade tensions and increased foreign interest in Chinese equities, although weak loan and financing data indicate ongoing economic challenges [2]

Core Viewpoint - Recent data indicates that foreign capital is significantly reducing its holdings in Chinese bonds, with a notable decline attributed to rising U.S. Treasury yields and currency fluctuations, which may impact China's financial market [1][3][4]. Group 1: Foreign Capital Reduction - As of October 2025, foreign institutions held 29,765 billion yuan in Chinese bonds, a decrease of 2,843 billion yuan or 8.7% since the beginning of the year, marking the longest net outflow in five years [1]. - The yield on 10-year U.S. Treasury bonds reached 4.8%, compared to approximately 2.6% for Chinese bonds, creating a 2.2 percentage point yield advantage that attracts international capital [1][3]. - Approximately 62% of surveyed international investors indicated that currency fluctuations are a primary factor in their decision to adjust their holdings in Chinese bonds [3][4]. Group 2: Global Monetary Policy and Economic Factors - The divergence in monetary policy, with the U.S. maintaining a stringent stance while China has implemented three interest rate cuts in 2025, has widened the interest rate differential, further encouraging capital flow to the U.S. [4]. - China's GDP growth slowed to 4.6% year-on-year in Q3 2025, which, while still higher than many global economies, has led to cautious sentiment among foreign investors regarding Chinese bonds [4]. Group 3: Impact on Financial Markets - Foreign holdings of Chinese bonds accounted for approximately 2.1% of the total bond market as of October 2025, down from a peak of 3.5% in 2023, suggesting that while the outflow has some impact, it is unlikely to cause severe disruption [6]. - The outflow of capital may exert some pressure on the renminbi, but China's foreign exchange reserves stood at $3.24 trillion as of September 2025, providing a solid foundation to manage currency fluctuations [6]. Group 4: Long-term Outlook - The internationalization of China's bond market is increasing, with Chinese bonds included in major international indices, which may provide a more stable source of foreign investment in the long run [7]. - A survey of 50 major asset management firms revealed that about 67% believe the proportion of Chinese bonds in their global asset allocation will increase over the next five years [7].

Market Overview - On May 23, A-share market experienced a significant drop, with the Shanghai Composite Index falling over 0.9% and more than 4,200 stocks declining [2][5] - The market's risk appetite sharply decreased, leading to a notable rise in gold stocks as investors sought safe-haven assets [2][7] Market Dynamics - The decline in the A-share market was attributed to multiple factors, including a flash crash in the North Stock 50 index and a strong demand for capital outflow [10] - The trading volume of the CSI 2000 index recently surpassed its three-month high, indicating extreme congestion in micro-cap stock trading [10] - There was a notable shift in main capital from previously popular tech stocks to high-dividend sectors like banking and electricity [10] Global Influences - Increased global financial uncertainty, particularly concerns over the U.S. debt crisis and rising U.S. Treasury yields, has pressured risk asset valuations [10] - The 20-year U.S. Treasury yield has surpassed 5.1%, contributing to a risk-off sentiment among global investors [10] Future Outlook - Analysts believe the current market adjustment is more of a phase rather than a trend, with A-share valuations at relatively low historical levels [11][12] - There is potential for a structural market rally supported by policy measures and liquidity easing [11][12] - The average P/E ratios for the Shanghai Composite and ChiNext indices are at 13.85 and 36.44, respectively, indicating a suitable environment for medium to long-term investments [12]