Two "seesaws" are dominating the market

Recently, the global financial market has shown significant differentiation. The latest research report released by Huatai Securities points out that two major "seesaw" effects have become the dominant forces in the market— the stock-bond seesaw and the "East-West" seesaw.

Specifically, the stock-bond seesaw means that the trading logic in the Chinese market is experiencing a shift from technology stocks to policy-driven dynamics. The bond market is experiencing increased volatility, while the stock market is demonstrating greater resilience under policy support.

The "East-West" seesaw effect is currently dominating the global market landscape. Recently, the performance of the Chinese and U.S. stock markets has diverged, showing characteristics of "East rising and West declining." The S&P 500 index and the Dow Jones index have fallen for four consecutive weeks, while A-shares and Hong Kong stocks have risen against the trend. The uncertainty surrounding Trump's tariff policies and economic cooling has triggered capital outflows from U.S. stocks. The narrative around domestic AI technology stocks and favorable policies has boosted the market, leading to accelerated foreign capital inflows.

Shenwan Hongyuan pointed out in its research report on the 16th that demand-side stimulation needs to resonate with supply-side clearing, and 2026 may be the first window for supply clearing in the midstream manufacturing industry of A-shares in history. At that time, a series of macro narratives may improve, the market's demand for stable growth policies will decrease, the impact of tariff threats on profits will weaken, and the conditions for China to optimize its external circulation will improve.

Stock-Bond Seesaw: Market Switching Under Policy Leadership

Huatai Securities states that the stock-bond seesaw effect is driven by a combination of fundamentals, liquidity, and market sentiment. With the convening of the Two Sessions, the market trading logic has shifted from technology stocks to a policy-driven macro logic. Bond market volatility has increased, while stock market volatility has decreased, enhancing the relative attractiveness of the equity market.

The report analyzes that the recent stock-bond seesaw effect is influenced by both the macroeconomic environment and policy direction. On one hand, while there are expectations for monetary policy easing, there is no urgency in the short term, and market expectations for interest rate cuts have been adjusted; on the other hand, regulatory policies are increasingly supportive of the stock market, from stabilizing the real estate market and stock market to guiding medium- and long-term funds into the market, a series of measures help reduce systemic risks in the stock market and enhance market stability.

From the perspective of volatility, bond market volatility has increased, while stock market volatility has decreased. The transformation of bank wealth management into net value and changes in regulatory policies have further amplified the volatility of the bond market, resulting in a decrease in the attractiveness of fixed-income products.

At the same time, the attractiveness of the equity market is gradually increasing. In a low-interest-rate environment, the return on pure bond assets has significantly decreased, while non-technology sectors, such as consumer staples and other value sectors, have advantages of high dividend yields and low valuations, combined with policy catalysts, their expected returns are significantly better than bonds.

Zhang Yu from Huachuang Securities believes that as deposit rates continue to decline, the opportunity cost of residents holding deposits (the difference between investment returns and deposit rates) continues to rise, thus prompting residents to start moving their deposits. Against this backdrop, the effect of the stock-bond seesaw may be stronger. Especially for equity investors, the current activity in the equity market primarily needs to track changes in residents' deposit movements, followed by the central bank's monetary policy. **

"Compared to exchange rate pressure, the current focus is more on the idle flow of funds. Short-term exchange rate pressure has less constraint on monetary policy, and the central bank's monetary policy may pay more attention to the situation of idle non-bank funds domestically. The relocation of household deposits is an important factor driving the current idle flow of non-bank funds. Historically, the more household deposits flow into non-bank sectors, the tighter the central bank's monetary policy tends to be."

Shenwan Hongyuan stated, In the combined period of January to February, the large issuance of local government bonds supported high growth in social financing, but the year-on-year decrease in medium and long-term loans to households and enterprises dragged down credit growth, confirming that real demand remains weak. This has led to market expectations that the window for a timely reserve requirement ratio cut and interest rate reduction is approaching, with liquidity being relatively tight since the beginning of the year, which may shift towards further easing in the short term. This is more reflected in the optimistic expectations of the stock market in the short term.

"East-West" seesaw: Market differentiation dominated by fund allocation logic

In addition to the stock-bond seesaw, another phenomenon worth noting is the "East-West" seesaw, which refers to the differentiation in the performance of the Chinese and American stock markets.

Huatai Securities' research report pointed out that the uncertainty of Trump's tariff policy and economic cooling has triggered a "recession trade" in the U.S. market, with funds flowing out of U.S. stocks and into A-shares and Hong Kong stocks.

"The S&P 500 index and the Dow Jones index have fallen for four consecutive weeks, with a cumulative decline of over 2% last week. The Dow Jones index fell 3.1% last week, marking the worst single-month performance since March 2023. In contrast, A-shares and Hong Kong stocks have risen against the trend, with the Shanghai Composite Index accumulating a 3.0% increase and the Hang Seng Index rising 4.4% over the past two weeks, demonstrating strong resilience."

In the past, the Chinese and American stock markets typically moved in the same direction, usually driven by macro logic. However, the recent market has been more influenced by fund allocation logic. The uncertainty of Trump's tariff policy and economic cooling has led to funds flowing out of U.S. stocks. The narrative around domestic AI technology stocks and favorable policies has boosted the market, accelerating foreign capital inflow. Funds have shifted from technology stocks to large consumer sectors, expanding market hotspots.

Shenwan Hongyuan believes that there are still obstacles to the fermentation of pro-cyclical optimistic expectations, and endogenous economic improvement requires supply clearing as a prerequisite, with 2026 being a key window:

"In Q2 2025, China's exports face downward pressure on growth, with the fermentation of overseas recession expectations + the decline in support for import demand from the U.S. inventory cycle. If this phase is compounded by increased tariff threats from the U.S. against China, macro expectations may experience significant fluctuations. Some advanced technology theme investments may also adjust under macro expectation disturbances."

Market Performance: Divergence in Stocks and Bonds with Commodity Volatility

HTSC pointed out that under the dominance of two major seesaw effects, the recent market has shown the following characteristics:

1. Equity Market: The domestic stock market has returned to a stage of stock game, with large-cap stocks significantly outperforming small-cap stocks. The market style has shifted towards undervalued defensive sectors and dividends, with increasing differentiation within the technology sector. High-valued targets are facing profit-taking pressure, and the AI-themed market is gradually shifting towards more certain power sectors.
2. Bond Market: The domestic stock-bond seesaw effect is suppressing bond market sentiment, with negative feedback from redemptions expanding at the beginning of the week. Trading and panic-driven activities are pushing interest rates up rapidly, with long-end adjustments greater than short-end, steepening the curve.
3. Commodity and Forex Market: Trump's strong stance on tariffs has intensified market risk aversion, with a weaker dollar and concerns about economic growth also supporting a rise in gold prices. The risk of a U.S. recession and tariff concerns are disturbing the market, leading to a slight rebound in the dollar index, while the yen benefits from its safe-haven attributes and rises