I. China: Q2 Growth Slows, External Trade Remains Key Driver
China’s Q2 GDP grew 5.2% year-over-year, but momentum weakened notably in June, with both consumption and investment showing signs of softening. In particular, catering services grew only 0.9% YoY in June, a significant deceleration likely tied to the suspension of consumer subsidies.
The real estate sector also continued to disappoint: investment growth declined further, and both sales volume and sales area contracted more sharply. Meanwhile, the pace of decline in existing home prices is moderating more slowly.
According to the National Bureau of Statistics, net exports contributed over 35% to GDP growth, remaining the primary driver of economic expansion. Given recent tariff developments—the U.S. has finalized a sweeping set of tariffs scheduled to take effect on August 1, ranging from 20% on Vietnam, 25% on Japan and South Korea, 30% on Europe, and 50% on Brazil—a rush to export is likely to persist. This suggests that final U.S.-China tariffs will likely not be lenient, with a floor of at least 30%. Against this backdrop of uncertainty, domestic consumption stimulus and infrastructure investment will remain pivotal in H2.
II. Policy Signals: Urban Development, Not Real Estate Revival
The Central Urban Work Conference released its formal communiqué, emphasizing high-quality urban development. While urban renewal was mentioned, it was not the policy focus. Consequently, infrastructure-related sectors reacted negatively.
Still, with a lack of visible infrastructure investment so far this year, this area will be critical in the second half. We believe that key infrastructure policies will be announced by late Q3, consistent with last year’s timing, to ensure the full-year growth target is met.
III. Equity Market: Not a Full Bull Yet
China’s major equity index has broken above 3,500, driven significantly by the banking sector. Some view this as the start of a broader bull market. In theory, during a bull phase, sector rotation becomes less critical, but current macro conditions do not fully support this optimism.
Despite entering a capacity reduction phase, CPI and PPI remain deeply in negative territory, and a turnaround appears unlikely in the short term. While computers and semiconductors are indeed valid trading themes, traditional overcapacity sectors remain unattractive.
Should economic data miss expectations, these outperforming sectors could face sharp corrections. We do not believe the market is yet in a full-fledged bull cycle.
IV. U.S. Markets: Inflation, Fiscal Stimulus, and the AI Trade
In the U.S., June CPI came in at 2.7% YoY, in line with market expectations. The Nasdaq continues to rise, and we sense that U.S. monetary policy is increasingly distorted by the so-called “taco trade”—a market belief that even in the face of higher inflation, the Fed will refrain from aggressive tightening.
Markets appear to have adjusted to Trump-era uncertainty. With the “Beautiful America Act” delivering substantial tax cuts, capital-driven investment-led growth is becoming more plausible.
At the same time, NVIDIA CEO Jensen Huang’s visit to China and the signaled reopening of export channels have reinvigorated AI-linked assets. These factors reinforce our previous call for a 5–10% upside in the Nasdaq, which is now increasingly within reach.
However, three major risks remain:
A hawkish Fed pivot;
A comprehensive tariff retaliation by the EU;
An intensification of the U.S.-China tariff standoff.
V. Stablecoins: A New Global Liquidity Channel
An increasingly important factor that should not be overlooked is the role of stablecoins in the global capital market.
As Hong Kong prepares to issue its own stablecoin, attention is shifting to how this asset class might neutralize the effects of global rate hikes. While rate increases are typically liquidity-draining, stablecoins—being non-yielding yet highly liquid—could act as a counterbalancing force, injecting net liquidity into the global system.
This dynamic may exacerbate the rally across global risk assets. We recommend continued close monitoring of Circle, Hong Kong-linked stablecoin developments, and associated asset prices.
Conclusion: The second half of 2025 will be shaped by tariff dynamics, fiscal stimulus timing, and emerging liquidity channels like stablecoins. While select sectors offer opportunities, macro and policy risks require disciplined positioning and agile response to data surprises.