I. Performance and Valuation of Global Equity Indices
Source: Bloomberg, Tiger
Key Highlights
◼ Last week, global capital markets experienced mixed performance, with the phenomenon of “East rising, West wavering” becoming increasingly evident. Greater China equity assets surged across the board, with Chinese A-shares standing out as the strongest performers—the CSI 300 and Shanghai Composite Index gained 4.45% and 3.74% for the week, respectively. Meanwhile, U.S. equities saw heightened volatility and an internal rotation between large- and small-cap stocks: the large-cap Nasdaq edged down slightly, while the small-cap Russell Index posted significant gains.
◼ Recently, Fed Chair Jerome Powell struck a dovish tone at the annual Jackson Hole symposium, highlighting the severity of the current labor market conditions. He signaled that there is justification for adjusting the Fed’s policy stance, which has driven the probability of a September rate cut above 90%. Against this backdrop, next week’s U.S. employment report will be critical—data must show moderate weakness, as being either too strong or too weak could disrupt the Fed’s expected easing trajectory. On the other hand, Greater China markets have been exceptionally buoyant. We believe that in a liquidity-driven “water-bull” rally, the most important factor to watch is capital flows and market liquidity. High-frequency indicators such as turnover ratios, leverage levels, and sentiment indices suggest that investor enthusiasm has already reached elevated levels. In the short term, how far and how high the rally can extend will depend on whether fresh capital continues to step in.
◼ Key events to watch this week: U.S. Q2 GDP revision, U.S. July PCE inflation, as well as earnings reports from Nvidia and major U.S.-listed Chinese companies.
II. Key Market Themes
Rate Cuts Approaching: Can Greater China’s Rally Continue?
Last week, global capital markets posted mixed performance, with the overall pattern of “East rising, West wavering” continuing. Two key themes dominated the market: Fed Chair Jerome Powell’s dovish remarks at the Jackson Hole symposium, and the sustained rally across Greater China assets. Let’s look at them one by one.
First, the much-anticipated Jackson Hole meeting. Historically, this annual central banking conference has often served as a policy signal for the Fed: in 2022 it flagged aggressive rate hikes, in 2023 it reinforced higher-for-longer, and in 2024 it marked the beginning of rate cuts. Today, whether it’s tariff shocks, inflation pressures, or the employment outlook, none of these paths are entirely clear. That makes this year’s speech particularly significant.
In summary, Powell conveyed three core points:
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On employment: “The labor market appears balanced, but it is a peculiar balance driven by a significant slowdown in both supply and demand.” In other words, while headline employment data still looks decent, downside risks are quickly building—businesses could easily shift from hiring freezes to large-scale layoffs.
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On inflation: “The impact of tariffs on consumer prices is now evident, though the timing and magnitude are highly uncertain. A reasonable baseline is that the effect will be one-off.” This suggests the Fed acknowledges upward pressure on inflation, but views it as transitory rather than the start of a wage–price spiral.
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On rate cuts: “Given that policy is already in restrictive territory, changes in the baseline outlook and balance of risks may give us reason to adjust our stance.” The signal here is clear: the Fed is preparing to pivot, and the door to rate cuts is opening.
Overall, Powell’s speech significantly boosted expectations for a September rate cut and underscored that safeguarding employment will be the Fed’s top priority in the second half of the year. In effect, the Fed is signaling it can tolerate some inflationary overshoot, but it cannot afford continued deterioration in the labor market.
With this in mind, we can begin to outline potential macro scenarios for the rest of the year:
Source: Tiger Brokers
Therefore, this week’s PCE, next week’s nonfarm payrolls and unemployment rate, and September’s CPI will all be highly delicate—especially next week’s labor market report. Under the Fed’s baseline scenario, the data cannot come in too strong or too weak; it needs to be “weak just enough” to be considered ideal. In addition, according to Citadel Securities’ estimates, starting from late August, systematic flows—including retail demand, corporate buybacks, and CTA strategies—are expected to turn into headwinds. This suggests that U.S. equities could face significant liquidity pressure in September. In our view, both from the macro perspective and the flow perspective, U.S. equities are facing heightened uncertainty at this juncture. Stepping aside temporarily may be the more prudent choice.
Turning from U.S. equities to Greater China—the recent global leader in performance—we maintain our view from last week: this is a liquidity-driven bull market. Structurally, insurers, mutual funds, private equity, and Central Huijin have all participated and contributed capital inflows. According to UBS estimates, by Q2 2025, Chinese insurance funds’ equity investments reached RMB 4.7 trillion, an increase of more than RMB 620 billion compared with year-end 2024, marking a clear acceleration from previous growth rates. In addition, since early 2024, although China’s total household deposits have remained at elevated levels, their growth rate has slowed significantly. Meanwhile, deposits at non-bank financial institutions have not only rebounded over the past two years but also show signs of accelerating. In other words, there is evidence that household savings may be flowing into the capital market indirectly through wealth management products, insurance, and other non-bank channels—providing additional liquidity to support the rally.
Given this backdrop, tracking capital flows is key to gauging how far the Greater China bull market can run. We suggest monitoring several indicators. First, turnover ratio: in recent trading sessions, turnover in China A-shares has picked up notably, with daily trading volume surpassing RMB 3 trillion. The current monthly average turnover ratio is approaching the October 2024 level, second only to the peak in 2015. Second, market leverage: margin trading now accounts for about 12% of total market turnover—close to a decade-high, though still well below 2015 levels. Third, retail participation: a surge in retail sentiment is often a late-cycle signal to watch. For this, we track Baidu/Douyin search indices. Although the search volume has shown a clear upward trend this week, the absolute level is still less than half of that in October 2024. In short, market sentiment is not yet euphoric, but it has reached a significant level. How much higher this rally can go in the short term will ultimately depend on whether sufficient incremental capital continues to flow in.
Source: CEIC, UBS
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