After ten years of consolidation, the A-shares will enter a new bull run cycle with three major impacts.

Dear esteemed reader:

Previously, we have shared our views on the new asset attributes of BTC after reaching a new high. In light of the significant changes in the competitive landscape between China and the United States, we believe it is necessary to share our views on RMB assets.

Our core viewpoint is: We are about to enter the largest joint fiscal and monetary easing cycle between China and the United States since 2008. The main theme of this easing will be the synchronized recovery of the Chinese and American economies and the most intense competition for monetary and international influence.

Among them, RMB assets, especially A-share assets, will face a triple blow from the funding side, policy side, and fundamentals. A-shares have gone through more than a decade of consolidation and have a similar cost-performance ratio to Bitcoin at $28,000. For a long time in the future, the main competitive point between China and the United States will be the international currency usage ratio, which will also be the main theme of the world in the future.

As of the date of writing this article, the total market capitalization of the RMB equity market (including H shares) is approximately 120 trillion RMB, while the total market capitalization of the US stock market is about 50 trillion USD. The scale difference between the two may be smaller than what many would first imagine. However, when comparing the total economic size of China and the US (in terms of GDP, the US is about 1.5 times that of China), there is still a significant gap. At this moment, the fact we observe is:

1. From a political perspective, the United States is fully shifting towards pure populist right-wing politics, and its global strategy will further contract. The existing core influences of the United States, such as NATO and the Asia-Pacific region, are bound to weaken further. In the Middle East and the Russia-Ukraine war, the decline of the United States' global influence is also evident. The downward trend of the dollar's influence since the Iraq War may enter a new accelerated downward cycle, while domestic divisions and struggles have also entered a new state of turmoil.
2. From a monetary perspective, during the period of continuous easing of the US dollar accompanied by the rise of US stock assets, China has entered various deleveraging cycles since 2015, which has accumulated significant space for monetary and fiscal policy in the long term. Meanwhile, the issue of US debt has become increasingly prominent, already becoming the most important asset issue for the next decade. After the all-in on technological innovation, the short-term monetary and fiscal space of the United States will gradually need to be exchanged for global influence.
3. From the perspective of trends, RMB assets have already welcomed significant bottom signals in net liquidity (represented by M2), fundamentals (represented by CPI and housing prices), and policy aspects (political meetings since September) over the past two months.

We believe that during this easing cycle, there are clear turning point possibilities in the aforementioned political, monetary, and fundamental aspects. The accumulated differential between Chinese and American equity assets and liquidity over the past decade may welcome a new trend of convergence and reduction. Increasing exposure to the RMB system can enhance our ability to cope with external event shocks and provide a margin of error for our vision of becoming a long-term family office for high-net-worth LPs.

Our Understanding and Trading Approach to the A-Share Market

Understanding the A-share Market and Chinese Assets

The A-share market is a typical policy-driven market solely based on the RMB. Since 2015, it has undergone a continuous 10-year deleveraging and capacity reduction cycle, compounded by a 7-year decoupling cycle of domestic and foreign capital that began in 2018. It can be said that the clearing of A-shares has experienced an extreme 10 years, and China's economic growth rate began to accelerate its transformation from 2015.

At this moment, we believe that the enormous opportunities facing A-shares or Chinese assets mainly come from the following facts and inferences regarding policy, fundamentals, and capital:

On a factual level, our understanding is:

1. From the perspective of policy space, China's deficit rate (the ratio of fiscal deficit to GDP) has long followed the limit of a narrow deficit rate3% since 2008, based on the total GDP and growth rate. This is significantly lower than the deficit and debt pressures of other major economies in the world, such as the United States (around 7%, with several years recently exceeding 10%) and Japan (around 6% historically, recently around 8%).
2. From an economic fundamental perspective, China has the world's only complete industrial production system and the cheapest, soundest power system and resources.
3. From the perspective of the A-share funding situation and positioning, the capital market has long been in a politically marginal position, and the speech in September 2024 is the first time since taking office that explicit requirements have been made for the capital market;
4. From the perspective of national strength development, China has undergone a tremendous change in its military capabilities in coastal and aerial areas, as well as its global influence, compared to a decade ago.
5. The differences in economic growth rates since 2015 and the differences in the performance of the Chinese and American stock markets since 2022 ultimately stem from a mismatch in monetary cycles. The core issue of China's short-term economy lies in the deflation of CPI.

From an inferential perspective, we believe that under general assumptions:

1. China may issue 50-200 trillion yuan in the next 10 years (simply considering that the deficit ratio will align more closely with that of the US and Japan; in fact, a recent statement from the Ministry of Finance has clearly indicated the intention to relax the narrow deficit ratio);
2. The governing ability of the Chinese government can ensure the occurrence of at least 1-2 industrial cycles in China;
3. China's global influence will fluctuate upward before the leapfrog change in the form of agent hot wars/conflicts, and the current two local wars will accelerate this trend.
4. In the medium term, the likelihood of a localized direct hot war between China and the United States is almost zero.
5. In the short term, the reversal of the CPI has little possibility of failure. Local government debt and real estate issues are not the main contradictions based on a) and b), making them easy to resolve. China's social culture and the characteristics of its people (easy to inspire, desire for money) determine that building social confidence will not be difficult.

In summary, we believe that before a hot war breaks out between China and the United States, we will witness a synchronized leap in the economies of both countries. Meanwhile, the Chinese capital market is facing a triple blow from policy, fundamentals, and funds, which is nearly identical to the situation faced by Bitcoin in 2023. The biggest difference is that the A-share chip consolidation has already experienced 10-15 years.

industrial trends/domestic unified market consumption