Since last week, we have observed a persistent rise in U.S. and Japanese government bond yields, alongside a noticeable loss of upward momentum in both the Nasdaq and Nikkei indices. In response, we have fully exited our positions in U.S. and Japanese equities and increased our holdings in gold and digital currencies during their recent pullbacks. This move has effectively locked in the profits from the recent rallies in the Nasdaq and Nikkei, positioning us to patiently await the next wave of opportunity.
In our view, equity markets remain overly optimistic in the face of growing tariff-related uncertainties. Since Trump’s announcement on April 10 to pause reciprocal tariffs for 90 days, no formal trade agreement has materialized. The widely anticipated deal between the U.S. and India has yet to surface. As we previously noted, no binding tariff agreements are expected within the first 60 days of this truce. Yet during this window, the Nasdaq and Nikkei surged sharply, pricing in both a potential 10% blanket tariff and Trump’s pro-market posture.
Now, momentum in both indices is clearly stalling. Over the next 30 days, we expect increasingly chaotic messaging around tariff negotiations, driving wide market swings. While headline risks will rise, the extent of downside retracements is likely to be milder than before—though still more pronounced than current conditions.
On Friday, U.S.-EU trade talks reportedly hit a deadlock. Trump threatened to impose a 50% punitive tariff unless the EU makes concessions. However, the baseline for this 50% remains unclear. Meanwhile, U.S.-Japan negotiations have yet to yield formal texts, with a third round scheduled for next week. Japan maintains a firm stance, refusing to compromise on auto and steel tariffs. Export data already show signs of decline, suggesting the “front-loading” export effect is fading. Given this context, the Bank of Japan is unlikely to raise rates—despite persistent long-term inflationary pressure.
From a global macro perspective, the trade dispute is revealing an increasingly bifurcated U.S. economy. On one hand, employment and consumption data remain robust; on the other, small business sentiment and market-based inflation expectations are climbing, raising stagflationary risks. This has led to a clear split in views on the U.S. economic outlook. What is certain, however, is that Trump’s strategy of maximum pressure has yielded political leverage: the entire Fed board now leans optimistic, a reflection of Trump’s growing influence over monetary policy. While he cannot remove Chair Powell, Trump has managed to exert political pressure on the FOMC, effectively ensuring the Fed won’t use rate hikes to counteract White House economic policies. As such, any short-term rally in U.S. equities is vulnerable to sharp pullbacks, fueling continued volatility.
In Japan, April CPI showed YoY increases of 3.6% headline and 3.5% core, with a firming yen suggesting inflation is driven more by external demand than import costs. Given upcoming tariff impacts and a relatively stable financial system, the BOJ is expected to hold rates steady. Long-term interest rates in Japan continue their upward trajectory, reducing liquidity through carry trade effects and weighing on overall asset performance. While a sustained bull market in the Nikkei may emerge if a trade deal is reached, we believe it’s premature to price in that scenario now.
In terms of broad asset classes, gold and digital currencies have been top performers. Gold recently experienced a pullback, but the strength of bullish positioning suggests that breaking prior highs is only a matter of time. With U.S. debt rollovers peaking in June and July, the government will likely continue increasing the debt ceiling to refinance obligations—further underpinning gold’s rally.
Digital currencies, which lagged gold earlier this year, are now surging rapidly, closing the exchange-rate gap between BTC and gold. The question of whether digital currencies can serve as a store of value alongside gold is becoming central for asset managers and regulators alike. Bitcoin has repeatedly demonstrated its viability as a store of value. However, unlike gold, digital asset exchanges are concentrated under U.S. regulatory jurisdiction and operate primarily in USD. This concentration of pricing power raises significant concerns for global financial regulators. While gold can be traded worldwide, the same cannot yet be said of digital currencies.
In China, recent real estate data point to weakening momentum, raising the risk of a stalled recovery. The financial stimulus package unveiled on May 7 has lifted confidence somewhat, but likely falls short. Despite rate cuts, concerns are growing as deposit rates are also trending lower. Equity markets remain heavily reliant on bank-related stocks to stabilize major indices, while performance outside the banking sector is lackluster.
Financial authorities are now aggressively developing the corporate bond market—especially innovation-linked bonds—as a channel to fund tech enterprises. The “sci-tech bond” market is expanding rapidly and has reached a scale of RMB 200 billion. However, for ordinary investors, this structural evolution is not yet translating into accessible investment opportunities.
We suggest focusing on certain Hong Kong-listed stocks, especially those in parallel sectors to mainland firms. Recent strong performances from companies like CATL and Hengrui Pharma in the Hong Kong market have lifted related A-share sectors. This investment direction merits attention. That said, broader equity indices such as the CSI 50, 300, or 1000 offer limited upside, and short-term trading remains unprofitable—best avoided.
Looking ahead, for investors in RMB-denominated assets, falling deposit rates and declining index volatility require a pivot away from index-focused strategies. Special attention should be paid to Hong Kong-listed companies with strong fundamentals and active financing ability, as their expanding balance sheets indicate continued growth potential and investment value.