I. Performance and Valuation of Global Equity Indices
Data Sources: Bloomberg, Tiger Asset Management
Key Highlights
◼ Last week, driven by the U.S. lifting the export restrictions on NVIDIA's H20 chips, the Hong Kong Hang Seng Tech Index saw a significant increase, rising over 5% in a week. This also led to a general rise in major Chinese equity indices, including the Hang Seng Index, Shanghai Composite Index, and CSI 300. At the same time, the trend of the U.S. stock market remained unchanged, continuing to move upward with slight gains in the S&P 500, NASDAQ, and Russell indices.
◼ Last week, the U.S. June inflation data was released, with both the CPI and PPI figures slightly outperforming market expectations. On the sub-categories, the moderate increase in services somewhat offset or compensated for the rise in goods. Overall, the inflation data reflects some tariff impact, but it is not significant and remains controllable. Additionally, U.S. June retail growth exceeded expectations, with all sectors seeing growth, indicating that U.S. consumer demand remains robust. Considering both factors, the Federal Reserve is likely to continue waiting and the market need not worry about recession risks for the time being. Furthermore, last week, Greater China also became a market focus, with the unblocking of NVIDIA's H20 chip exports and the start of major projects such as the anti-involution initiatives and the Yajiang mega-project, driving the rise in high-quality tech stocks and undervalued cyclical stocks in Greater China.
◼ This week, key focus points include U.S. durable goods orders and earnings reports from tech giants like Tesla and Google.
II. Key Market Themes
U.S. Macro Situation Temporarily Stable, Greater China Sticks to Two Mainlines
The past week saw continued volatility in U.S. stocks. On the macro front, hard data for June, including CPI, PPI, and retail sales, were released, and not only did they avoid any unexpected shocks, but they also performed better than market expectations. First, as we discussed last week, the CPI shows that "commodity inflation is rising, service inflation is moderate, and the two offset each other, leaving the overall data acceptable." The following day, the PPI confirmed this conclusion. June's PPI showed zero month-over-month growth, which seemed significantly lower than market expectations, but in reality, the previous value had been revised upward, so it was not a particularly surprising result. More importantly, within the sub-categories, goods and construction contributed nearly 0.1% month-over-month growth, while services contributed nearly -0.1% month-over-month decline. Therefore, both CPI and PPI reflect some tariff impacts on goods, but these were successfully masked by cooling in the services sector.
On the other hand, June's retail data was equally strong, rising 0.64% month-over-month, significantly exceeding expectations and the previous month's value, and breaking a two-month streak of declines. From the sector perspective, the rebound was broad-based. The automotive and parts sector, the largest in weight, rose 1.2%, and other sectors such as construction, apparel, food, and pharmaceuticals all saw increases. Furthermore, the Control Group, which is included in GDP calculations, rose 0.5%, expanding its growth rate. Although retail data tends to lag, this performance at least indicates that U.S. consumer sentiment remained robust as of June, unaffected by significant tariff impacts. From the business side, the U.S. June Small Business Optimism Index recorded 98.6, a relatively optimistic level compared to the past year.
Data Sources: U.S. Census Bureau, Bloomberg, Tiger Asset Management
Combining the inflation and consumption data, it is clear that: First, inflation is manageable, with tariff impacts present but not significant; second, the economy is doing well, with strong consumer demand. As such, the Federal Reserve can continue to observe, and the market need not worry about a recession for now. In this context, macroeconomic factors are not likely to be the market's main narrative, with fundamentals and corporate earnings becoming the main drivers of market movements, particularly in sectors such as AI and stablecoins.
While the macro environment gives the Federal Reserve more time to observe, Trump, it seems, is in a hurry. Last week, the controversy over the possible dismissal of Jerome Powell resurfaced. Initially, sources within the Republican Party claimed that the president was discussing Powell's removal and had even drafted the necessary documents. Hours later, Trump personally clarified, stating that he had no intention of doing so. This caused a brief period of market turbulence. In fact, this is not the first time this issue has arisen and probably will not be the last. It reflects two phenomena: First, Trump is eager to see interest rate cuts; second, the market is nervous about Trump taking a hard-line approach.
As we previously discussed, among the three major uncertainties facing U.S. stocks, the most difficult to address is rate cuts. For Trump, tariff revenues can offset government tax cuts and spending, but the pressure from government debt must be alleviated through interest rate cuts. Therefore, he has motivation to apply pressure, but we do not believe he will choose to use forceful means to dismiss Powell. On the one hand, the loss of the Fed's independence would have long-term detrimental effects on the U.S. stock market and economy. On the other hand, any violent intervention would require a lengthy legal process, and Powell will retire next year, so the White House could intervene through a shadow Fed or other means. Thus, we believe the likelihood of Trump taking a hard-line approach is low.
Data Source: polymarket
Last week, apart from the U.S., Greater China was also the focus of the capital markets. On one hand, the U.S. government lifted export restrictions on NVIDIA's H20 chips, and Jensen Huang’s visit to China saw him donning traditional Chinese attire and speaking Chinese. On the other hand, China's anti-involution policies continued, with regulators meeting with three major internet companies involved in the recent "food delivery war" to stop this wasteful competition. These dual factors stimulated the rise of the Hang Seng Tech Index. Moreover, a major piece of news emerged over the weekend with the official start of the Yarlung Zangbo River mega-project, igniting a surge in the infrastructure sector.
Friends who have attended Tiger Asset Management's weekly meetings know that we have always emphasized two main lines for Greater China assets: one being high-quality tech stocks, and the other being undervalued cyclical stocks, which corresponded to the two points of breakout in this cycle. In the short to medium term, with some easing in U.S.-China relations, including reports that Trump might visit China, the external environment for Greater China assets looks favorable. In the long term, the key challenge for Greater China remains domestic, particularly how to implement more comprehensive stimulus policies and effectively boost demand. We fully believe that China will not fall behind in AI and remain optimistic about the return of value in Greater China's cyclical stocks.
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