"East Rising, West Falling" is not just a macro narrative

Changes worth noting began around the Spring Festival, which may indicate that "the East rises while the West falls" is not just a macro narrative:

① The trading volume of TMT in A-shares has surpassed the 40% cap of the past 5 years (the trading volume of U.S. technology stocks first broke 40% in 2023).

② Since the outbreak of DeepSeek, TSMC's stock in the U.S. has fallen over 20%, while TSMC's stock in Taiwan has dropped around 10%. At the same time, the divergence between AH technology stocks and U.S. technology stocks has widened.

③ In February, major foreign banks released reports turning bullish on Chinese stocks and Chinese technology.

④ Actions to resist Elon Musk have unfolded in Europe, with Tesla's sales in Germany plummeting 76% year-on-year in February.

⑤ Since the beginning of the year, U.S. employers have announced layoffs of 220,000 people, the highest since 2009, with government layoffs exceeding 60,000.

⑥ Trump has imposed an additional 10% tariff on China for two consecutive months, but the market's reaction has been minimal.

The current decline in U.S. stocks is driven by a crisis of confidence leading to a retreat from the "American exceptionalism" narrative. (1) The U.S. fundamentals are under downward pressure, with the GDPNow model predicting a -2.8% real GDP growth rate for the first quarter of 2025. (2) In January and February, the number of government layoffs in the U.S. exceeded 60,000, raising expectations of fiscal spending contraction and reduced private consumption and investment. (3) The unpredictability of U.S. tariffs and executive orders has raised inflation expectations. The Tax Foundation estimates that U.S. import tariffs will rise to 13.8% in 2025, the highest since 1931. (4) Policies beneficial to the economy, such as tax cuts and deregulation, require legislative approval and will take time to implement; whereas tariffs, immigration restrictions, and layoffs can be enacted directly through presidential executive orders, having the most immediate impact on the economy.

In this "troubled autumn" overseas, U.S. tech assets have significantly led the decline. The MAG7's current adjustment (as of March 7, 2025) has lasted 54 trading days, down 15.7%, both in duration and magnitude exceeding the previous four adjustments (which averaged 35 trading days with a decline of 10.4%, and a maximum decline of 15.3%) The adjustment in the US stock market may impact the A-share market from several angles: (1) Capital flow: If systemic risks arise, funds may reduce allocation to global equity assets; if the fundamentals of A-shares are significantly better than those of US stocks, it may attract global capital reallocation. (2) Monetary policy: A decline in US Treasury yields narrows the interest rate differential between China and the US, creating space for domestic monetary policy easing. (3) Market confidence: A combination of a weakening or flat US economy + a recovering China may lead to a potential increase in A-share asset valuations.

When the fundamentals of China and the US are not synchronized, a combination of a weakening or flat US economy + a recovering China tends to result in better performance of A-share assets. When the US fundamentals marginally decline (with US Treasury yields falling): (1) If China's fundamentals are also on a downward trend, it will be difficult to have an independent market; (2) If China's fundamentals are marginally improving, then A-share assets may have the potential for valuation increases, as seen in Q1-Q3 2019 and currently. However, this is contingent on the absence of severe recession risks in the US.

The narrative of a US "recession" is gaining traction, but current evidence remains insufficient: (1) High-frequency data indicates that retail sales in February are likely to rebound; (2) The manufacturing PMI for February has marginally declined, but the services PMI continues to rise; (3) The growth rate of the seven major tech companies has marginally decreased, but the absolute growth rate remains relatively high; (4) The profit growth forecasts for US stock indices for 2025-2026 are not bad.

The narrative of a "soft landing" in the US may be the best scenario for AH assets. In terms of short-term rhythm, continuity remains, and "April Decision" is a window period to monitor fluctuations in risk appetite. Over the past 15 years, the post-Spring Festival volatility period has lasted about an average and median of 31 trading days; currently, we are just past the halfway mark. In the medium-term dimension, the main line remains technology growth. Focus on beneficiaries of reduced inference costs such as AI applications, the ByteDance industrial chain, and integrated machines and localized deployment; within robotics, pay attention to tendons and electronic skin; for low-level growth, focus on military electronics; and for thematic investments, pay attention to cultural exports and the low-altitude economy.

Report Body

I. This Week's Viewpoint: With Continuous "Major Events" Overseas, Can A-shares Stand Alone?

(1) The degree of "divergence" between Chinese assets and US assets has reached a six-month high. Since mid-February, the divergence between the AH technology sector and the US tech sector has significantly widened. Based on the rolling 20 trading days, as of the latest data, the negative correlation between the Sci-Tech 50 and the Nasdaq 100 has reached -0.78, while the negative correlation between the Hang Seng Tech and the Nasdaq 100 has reached -0.57. ![](https://mmbiz-qpic.wscn.net/mmbiz_png/8ia58Yiap3VBw4DBo5kqTABujG9E1RPk9BJU8toPaIk40ibmAm1thFKb6qgTUczBrbBfdyBtg0eCA3rMt2heYINfg/640? In this context, the "American exceptionalism" is beginning to wane, replaced by discussions of "recession"; at the same time, the narrative of global capital reallocating to the Eurasian market and the revaluation of Chinese assets is gradually heating up. So, what is the core pressure behind the current decline of the US stock market? Can Chinese assets perform independently, or what is the most favorable environment for Chinese assets?

(2) The decline of the US stock market is behind a confidence crisis leading to the retreat of "American exceptionalism"

From the radical layoffs in DOGE (Department of Government Efficiency) triggering expectations of fiscal spending contraction, to the Trump administration's comprehensive tariff increases on major trading partners, and the tightening of immigration policies leading to a weakened labor market, the US stock market has not had a smooth start this year, with market confidence, consumer confidence, and corporate investment confidence all shaken. Firstly, there is downward pressure on the US fundamentals, leading to a short-term retreat of "American exceptionalism." On March 3, the Atlanta Federal Reserve's GDPNow model predicted that the actual GDP growth rate for the first quarter of 2025 would be -2.8%, mainly due to the drag from private consumption and net exports. Secondly, the federal government's downsizing has triggered expectations of fiscal spending contraction, a weakening labor market, and reduced private consumption and investment. According to the monthly report from Challenger Gray & Christmas, US employers announced layoffs of 220,000 people in January and February, the highest since 2009, among which more than 60,000 layoffs were from the US government, mainly due to actions from DOGE (Department of Government Efficiency). On March 6, Trump stated that measures had been taken to restrict the government efficiency department led by Musk. In addition, Tesla's sales have plummeted globally, for example, in February, sales in Germany fell by 76% year-on-year, partly due to consumer boycott movements.  to achieve a transition of the economy from government dependence to the private sector, but in the short term, the U.S. economy will inevitably go through a period of pain.

(3) Overseas "troubled autumn," U.S. tech assets lead the decline

The MAG7 index has seen a decline in both duration and magnitude that exceeds the previous four times. Since the beginning of 2023, the MAG7 index has undergone five adjustments; on average, during the first four adjustments, the MAG7 index fell from peak to trough over 35 trading days, with an average decline of 10.4% and a maximum decline of 15.3%; this round of adjustment (from 2024/12/17 to present, data collected until 2025/3/7) has lasted for 54 trading days, with the MAG7 index down 15.7%, exceeding both the duration and magnitude of the previous four times

(4) How to view the adjustment of the US stock market and its spillover effect on the A-share market? Can Chinese assets have an independent market trend?

The adjustment of the US stock market may affect the A-share market from several angles:

(1) Capital flow: There are two scenarios. If systemic risk occurs, capital will reduce allocation to global equity assets, and Chinese assets will also be indiscriminately impacted; if the fundamentals of A-shares are significantly better than those of the US stock market, it may attract global capital reallocation.

(2) Monetary policy: The decline in US Treasury yields leads to a narrowing of the interest rate differential between China and the US, providing space for domestic monetary policy easing.

(3) Market confidence: When the fundamentals of China and the US are not synchronized, a combination of a weakening or flat US economy + a warming Chinese economy may lead to an increase in A-share asset valuations.

When the marginal fundamentals of the US are declining (US Treasury yields are falling), there are two scenarios for the impact on A-share valuations:

(1) If the fundamentals of China are also in a declining trend, it will be difficult to have an independent market trend;

(2) If the marginal fundamentals of China are improving, then A-share assets may have the potential for valuation increases. As shown in the second scenario in the figure: when the marginal fundamentals of the US are weakening (US Treasury yields are falling) + the marginal fundamentals of China are warming, A-share valuations may rise, as seen in Q1-Q3 of 2019 and currently. However, the premise is that there is no severe recession risk in the US fundamentals, otherwise it will lead to a rise in global risk aversion.

Therefore, when the fundamentals of China and the US are not synchronized, a combination of a weakening or flat US economy + a warming Chinese economy leads to better performance of A-share assets.

![](https://mmbiz-qpic.wscn.net/mmbiz_png/8ia58Yiap3VBw4DBo5kqTABujG9E1RPk9Bu1zFFToibdunRxZpiaMarebRic0Bu16FvMueGicBO9B3AsR39w9siaZic0nQ/640?

(5) The narrative of "recession" in the United States is heating up, but current evidence is still insufficient

Firstly, the negative month-on-month retail growth in January may be related to the high base from the end of last year. High-frequency data indicates that retail data is likely to rebound in February. The current concerns about the U.S. economy began with the negative month-on-month retail data in January, which was influenced by the high base from strong holiday consumption last year. From high-frequency data, recent Red Book commercial retail sales have clearly rebounded, and retail data in February is expected to likely improve.

Secondly, the manufacturing PMI has marginally declined, but the services PMI continues to rise. Among them, the new orders and new exports in manufacturing have seen a significant month-on-month decline compared to January, possibly related to tariff expectations; the new orders in the services PMI have still improved month-on-month compared to January.

Thirdly, the growth rate of the seven major technology companies has marginally declined, but the absolute growth rate level remains high. According to the current Bloomberg consensus expectations, the consensus growth rate for 2025 is expected to drop from the current 55.8% to 31.7%, and the growth rate for 2026 is expected to further decline to 15.6%.

Fourthly, the profit growth forecasts for U.S. stock indices for 2025-2026 are not bad. Historically, bear markets often occur in the first year when profit growth rates significantly decline. From the current forecast values, excluding the tech giants, indices such as the EX MAG7 and Russell 2000 still show improving profit growth rates. wx_fmt=png&from=appmsg)

(6) The narrative of a "soft landing" in the United States may be the best scenario for AH assets

Overall, there is still insufficient evidence that the United States is heading towards a recession. As Powell stated on March 7, the state of the U.S. economy remains good, and there is no need to rush to cut interest rates, waiting for clearer signals from Trump's policies. The narrative of a "soft landing" in the United States may be the best situation for AH assets.

Looking ahead:

(1) The progress of industries such as DeepSeek and domestic robotics has brought the corresponding sector stocks closer to investment based on economic prosperity, moving away from the thematic investments of the previous two years. In other words, there may be more and more sub-sectors emerging, similar to the previous optical modules. Accordingly, each pullback formed by high congestion may be an opportunity for reallocation.

(2) In the past two years of the macro narrative where "the U.S. stands alone," there has often been concern that the decline of U.S. tech giants would end the opportunities for domestic stocks. However, since DeepSeek, the increasing capital expenditures from both domestic large enterprises and the government indicate that there has been progress and a supply chain in the domestic market, reducing the need to completely rely on the U.S. tech giants.

(3) From a mid-term perspective, the conditions for the revaluation of Chinese tech stocks are already in place, and there is potential for a higher outlook on tech stocks in the mid-term. Condition 1: The 25-year ROE is expected to end its decline and shift to stable expectations. Condition 2: The relative advantages of China's tech industry are emerging, and the relative gap is narrowing. Condition 3: Valuation and ERP positions determine the safety margin. Condition 4: Geopolitical turmoil and exchange rate risks are controllable.

(4) Returning to the short-term rhythm, the current continuity remains, and "April Decision" is a window period to pay attention to fluctuations in risk appetite. Over the past 15 years, the post-Spring Festival volatility period has lasted about an average and median of 31 trading days, and the current time has just passed the halfway mark.

(5) From a top-down perspective, at this stage, low-position cyclical sectors may have some room for catch-up. However, the current macro fundamentals and macroeconomic policies are in a "calm" phase, with marginal changes being small and insufficient to attract significant capital. As we enter March, the performance and press conferences of major companies (Xiaomi, ByteDance, Tencent) may reveal more industry progress.

(6) From a mid-term perspective, the main line remains technological growth. Focus on applications benefiting from reduced inference costs, the ByteDance supply chain, integrated machines, and localized deployment; in robotics, pay attention to sub-sectors like tendons and electronic skin; for low-position growth, focus on military electronics; for thematic investments, pay attention to cultural exports and low-altitude economy.

Author of this article: Liu Chenming/Zheng Kai/Li Rujuan from Guangfa Strategy, source: Morning's Strategic Deep Thoughts, Original Title: "[Guangfa Strategy Liu Chenming & Li Rujuan] 'The East Rises and the West Falls' is not just a macro narrative."

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk