To The Moon

 Takeaway

§   Chinese equities are enjoying the best start of the year in history, even in the haze of tariff war. The continuing southbound funds and AI-related revaluation made HK stocks stand out, but a catch-up rally in A-shares is still possible.

§   Uncertainties in US tariff policies remain one of the largest threats to the global risk appetite, making the safe-haven assets like gold, US Treasury bonds, and JPY in good demand.

§  For the US stock market, the comparative advantage versus EM is narrowing, but it is correction rather than a bear market. The exaggerated drop in US stock market has created buying opportunities in the short term.

$CSOP Star&Chinext50 S$(SCY.SI)$ $CSOP LOW CARBON US$(LCU.SI)$ $CSOP US Dollar Money Market ETF Unlisted Share Class P(HK0000503836)$ $CSOP S-REITs INDEX ETF(SRT.SI)$ $CSOP iEdge SREIT ETF US$(SRU.SI)$ $ICBC CSOP CGB ETF US$D(CYB.SI)$ $ICBC CSOP CGB ETF SGD(CYC.SI)$

 Macro Views

Key macro words in March:  US Tariff; Two Sessions; Southbound Flow

§  Uncertainties in US tariff policies remain one of the largest threats to the global risk appetite. On March 4, the US announced to implement tariff of 25% on Mexico and Canada and increase the additional tariff on Chinese products to 20% from 10%, followed by the retaliatory package of additional tariff by Canada and China, marking the debut of a new round of tariff war. However, just two days after Trump postponed 25% tariffs on many imports from Mexico and Canada for a month. It is the second time in two days that Trump has rolled back his tariffs on imports, bringing rising uncertainty for businesses and worried financial markets. The U.S. stock market clearly did not welcome tariff uncertainties, with the S&P 500 posting its worst week since September in the first week of March.

These unpredictable policies induced the doubts on “US Exceptionalism”. Trump’s active comments on US stock market suppressed the market sentiments, and its policy uncertainties caused fears of recession and stagnation. In our view, recession should not be the most pressing concern at the moment, and the technical recession might have limited impact on the US stock market. Additional indicators suggest that the U.S. economy remains robust. For instance, the current yield on the 10-year U.S. Treasury is still above 4.2%, and the February CPI report showed a cooling in inflation.

§  Safe-haven assets like Gold are distinguishing themselves amidst various uncertainties. Gold and U.S. Treasury bonds are widely recognized as effective hedges against escalating geopolitical and tariff risks, with gold being particularly noteworthy. The fundamental reason for this lies in the significant transformation of gold's long-term pricing model compared to the past. Historically, gold's price was driven by the market, primarily influenced by consumer demand and financial speculators, with our models indicating a correlation between gold prices and U.S. Treasury yields. However, in the wake of the Russia-Ukraine conflict, gold's status as a safe-haven asset has been amplified in today's climate of global geopolitical uncertainty. Central banks, especially those from countries that are not U.S. allies, have begun actively acquiring gold. We anticipate this trend will continue in the coming years, given the relatively low proportion of gold in their foreign exchange reserves.

§  However, the DeepSeek-induced revaluation of China’s assets was largely unaffected by the tariff risks. The emergence of DeepSeek has provided an opportunity for China's tech stocks to participate in the global AI boom. This revaluation has entered a positive cycle, further fueled by earnings surprises and continuous fund inflows. In early March, daily southbound purchases through the Stock Connect continued to reach new highs, even amidst the market correction.

Chinese equities have enjoyed the best start of the year in history, and Hong Kong stock market outperformed A-share market. Hang Seng TECH Index have surpassed its highs on September 24 last year and entered the technical bull. But for the A-shares, apart from the STAR 50 Index reaching new highs, other indices (such as the SSE Composite Index, ChiNext Index, CSI 300 Index, and CSI 500 Index) have not yet breakthroughs. The reasons for Hang Seng TECH Index taking the lead are the tech giants listed in HK are direct beneficiary and participant of the AI revolution, and the southbound inflows provided the liquidity support. According to the Goldman Sachs analysis, active mutual funds remain underweight Chinese equities by 340bp on an asset-weighted basis, even though the China allocation in mutual fund globally rose in February ending at 6.6%, implying more room for fund inflows.

 §  There is no big surprise on China’s macro side. The signals from Two Sessions are broadly in line with expectations, with consumption and tech focused on.  GDP growth target is set at around 5%, and augmented fiscal deficit expanded by 2 trillion RMB (from 3% to 4% of GDP). Tech innovation is highlighted. The meeting pledges to bolster tech innovation by improving market ecosystem and increase support for AI applications and new generation of intelligent terminals (NEVs, AI-enabled phones and PCs, and humanoids). It also emphasized the need to promote healthy development of platform economy, as an effort to stabilize the job market and boost consumption.

Asset Views

Leveraged and Inverse Products Flow

Record fund flow in Hong Kong L&I products

In February, HK-listed leveraged and inverse (L&I) products saw record high fund flows. Likely due to the profit taking in the bull market, HK leveraged products witnessed the largest monthly fund outflow of 10.7 billion HKD since 2022, while the inverse products achieved the historical inflow in February at 8.5 billion HKD.

Market Recap

In the first 2 months of 2025, Hong Kong stocks and A-share Tech sectors topped the global performance ranking, while US stocks and virtual assets losing their momentum.

§   Boosted by the revaluation of China’s AI sector, China’s tech giants listed on HKEX are excelling in 2025, making Hang Seng TECH index the best performer globally, up 24.6% year-to-date and 18.8% in February. Hang Seng China Enterprises Index and Hang Seng Index grew by 14% and 13.6% respectively in February.

§   In the A-share market, tech stocks performed well, with the STAR50 and ChiNext indices leading the gains, while the broad-based index like FTSE China A50 Index and CSI 300 Index lagged slightly.

§   “US Exceptionalism” is being challenged as US stock market weaken, with S&P 500 Index and NASDAQ-100 Index down 1.34% and 2.71% respectively.

§   Gold is expanding its gains supported by the rising global demands.

§   In contrast to last year's strong performance, Bitcoin futures and Ether futures are currently the worst performers globally this year.

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