Group 1 - International capital is experiencing a significant shift in attitude towards Chinese assets, with hedge funds rapidly increasing their net purchases of Chinese stocks, marking the highest net buying volume globally in August [1][2] - The Shanghai Composite Index surged by 1.45% on August 22, reaching a 10-year high, while the ChiNext Index saw an increase of over 8%, indicating strong market performance [2][3] - Emerging market funds have significantly reduced their holdings in Indian stocks while increasing their allocations to Chinese A/H shares and the South Korean market [3][4] Group 2 - In June, foreign institutional investors saw a net inflow of $1.2 billion into the Chinese stock market, which further increased to $2.7 billion in July, indicating a growing trend of foreign investment [5] - Korean investors have injected $5.8 billion into Hong Kong stocks this year, surpassing the total for 2024, reflecting strong foreign interest in Chinese assets [5] - The net inflow of foreign capital into A-shares is expected to continue, driven by the potential for significant funds to enter the market, as only 22% of household financial assets are currently allocated to funds and stocks [7][8] Group 3 - The optimism surrounding China's economic growth is rising among fund managers, with expectations for stronger growth reaching the highest level since March 2025 [7] - The current market rally is supported by improved liquidity, with funds shifting from the bond market to equities, and long-term bond yields indicating a positive outlook for the macroeconomic environment [7][8] - Foreign capital inflows are anticipated to accelerate due to attractive stock valuations and the expectation of declining U.S. interest rates, which may redirect funds back to China [8]

Core Viewpoint - European small-cap stocks are becoming a safe haven for investors amid the reshaping of global trade dynamics, benefiting from stronger domestic demand and successfully avoiding the dual impacts of tariff risks and euro appreciation [1][2]. Group 1: Performance and Trends - The STOXX European small-cap and mid-cap indices have risen by 9% and 11% respectively this year, outperforming the large-cap index which increased by 7% [1]. - Small-cap stocks have a lower dependence on cross-border trade compared to large-cap stocks, making them more resilient to potential tariff threats [1][2]. - European small and mid-sized enterprises have recorded net inflows for 10 consecutive weeks, marking the longest streak since 2021 [1]. Group 2: Geographic and Structural Advantages - Small-cap stocks benefit from a geographic isolation that shields them from the impacts of changing U.S. tariff policies, with approximately 60% of their revenues coming from Europe compared to 35% for large-cap stocks [2]. - The uncertainty surrounding potential tariffs, such as the rumored 15% rate, highlights the defensive characteristics of small-cap stocks [2]. Group 3: Currency Dynamics - The euro has appreciated over 12% against the dollar this year, currently trading around 1.17, which poses challenges for larger companies but is advantageous for small-cap stocks [3]. - Analysts predict the euro could reach 1.20, further benefiting small-cap stocks that are less exposed to international business [3]. Group 4: Valuation and Market Sentiment - Historically, small companies enjoyed a valuation premium over large companies, but this trend has reversed in 2023 and 2024 due to rising inflation and interest rates in Europe [3][4]. - The discount of small-cap stocks relative to large-cap stocks peaked at 11% in March but has narrowed to 6.5% [3][4]. - The expected P/E ratio for the STOXX European small-cap index is 13.4, lower than the 14.3 for large-cap stocks [3]. Group 5: Policy Support and Economic Recovery - The macroeconomic environment is improving, with Germany implementing large-scale spending plans and the European Central Bank beginning to lower interest rates, providing additional support for small-cap stocks [4]. - The SDAX small-cap index has surged nearly 20% since February, while the DAX blue-chip index has only increased by 8.4% during the same period [4]. - There is potential for small-cap stocks to be revalued favorably relative to large-cap stocks in the next 12 months [4].

Core Viewpoint - The article discusses the investment framework for H-shares in Hong Kong, highlighting the increasing allocation of southbound investors and the potential downward pressure on short-term earnings forecasts due to competition in the food delivery and other industries [3][4][5]. Group 1: Key Factors Influencing H-shares - The key factors driving H-shares, in order of importance, are: 1) policies and regulations; 2) earnings (especially earnings adjustment trends); 3) innovation; 4) capital flow (particularly from southbound investors) and interest rates; 5) valuation; 6) macro conditions; 7) geopolitical factors [4]. - The market is experiencing short-term pressure due to competition in the food delivery sector, which may lead to downward adjustments in earnings forecasts [5][8]. Group 2: Changes in H-share Investment Dynamics - The increase in southbound holdings has changed the dynamics of H-share investments, including: 1) reduced sensitivity to geopolitical issues; 2) greater impact of capital flow (especially southbound) and local liquidity (like HIBOR) on index performance; 3) decreased correlation with global markets; 4) reduced influence of economic factors due to a higher weight of technology stocks in the index [6]. - Despite the challenges, the valuation of Hong Kong stocks remains attractive compared to other domestic assets and global markets, which may support capital inflows from southbound and international investors [5][6]. Group 3: Short-term Outlook and Strategy - UBS analysts predict a 4% downside risk to market earnings forecasts for the Hang Seng China Enterprises Index, primarily due to competition in the food delivery industry [8]. - The company maintains an optimistic view on H-shares and the overall Chinese stock market, suggesting a "buy on dips" strategy due to attractive valuations, particularly in AI-related technology stocks [8]. - The focus on capital flow and innovation is expected to be crucial for market performance in the short term, with a recommendation for a barbell strategy in industry selection [8].

Core Viewpoint - The recent fluctuations in global bond yields indicate a shift in investor sentiment towards requiring higher risk premiums for holding long-term bonds, suggesting a return to historical norms [2][4][7]. Group 1: Market Reactions - The U.S. stock market rose nearly 2% last week, driven by gains in technology stocks [3]. - A U.S. trade court initially blocked most new tariffs, boosting the stock market, but a federal appeals court later allowed the tariffs to remain in effect pending a final decision [1][4]. Group 2: Bond Market Dynamics - The U.S. 10-year Treasury yield decreased slightly to 4.40%, yet remains 50 basis points higher than the low in April [1][3]. - Since April, there has been a significant rise in long-term bond yields, reflecting a normalization of global term premiums [4][7]. - Concerns over rising U.S. deficits are prompting a continued reduction in long-term U.S. Treasury holdings, with a preference for Eurozone bonds instead [8][9]. Group 3: Economic Indicators - Upcoming U.S. employment data is expected to provide insights into the labor market's condition [4]. - The European Central Bank is planning interest rate cuts while monitoring the impact of tariffs on the economy [4]. Group 4: Investment Strategies - The company maintains a bearish stance on U.S. long-term Treasuries due to rising deficit concerns and sticky inflation [8]. - There is a preference for short-term government bonds and European credit over U.S. bonds, attributed to lower valuations and reduced correlation with U.S. Treasury movements [9]. - Infrastructure stocks and private credit are viewed as attractive opportunities due to relative valuations and potential returns as banks withdraw from lending [13].