On Friday, global risk asset prices experienced increased volatility, but there was no sign of &#34;panic.&#34; The current valuation levels, which are higher than in April, raise an important question: whether global assets need to start responding to the already existing downturn in the fundamentals led by the U.S. service industry and technology, especially when there is no excessive panic-induced decline in the market itself that requires correction. Just as the core of the rebound after April was not TACO, the current situation does not suggest that a mere easing of conflicts is sufficient to support continued upward movement. We expect that the adjustment of global risk assets will not be severe, but will instead require a longer time to digest.
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<h2>Summary</h2>
1 Global risk assets broadly declined, but there was no &#34;panic&#34;
On Friday, global risk assets broadly declined, with significant drops in stock indices represented by U.S. and Chinese assets; 1) In the U.S. stock market, major indices recorded their largest single-day drop since mid-April, with technology stocks experiencing widespread corrections; 2) In terms of Chinese assets, Hong Kong stocks, which are more reliant on overseas liquidity, saw larger declines, while technology stocks that had previously resonated with overseas markets began to experience significant corrections. In the commodity market, industrial metals, which are more closely related to the global economic cycle, led the declines, and international oil prices, also affected by changes in the Middle East situation, began to show noticeable corrections.
Gold and digital currencies once again showed divergence, with gold rising while major digital currencies experienced significant corrections. In the foreign exchange market, while the U.S. dollar weakened marginally, the safe-haven yen and Swiss franc strengthened marginally. The volatility in asset prices this round mainly stems from disturbances caused by overseas risk events: on one hand, the permanent layoffs during the Trump administration's shutdown may weigh on the job market; on the other hand, a more direct catalyst is Trump's tariff threats against China, leading to a renewed escalation in U.S.-China trade tensions, significantly lowering market risk appetite, reminiscent of the &#34;equal tariffs&#34; introduced in April this year.
From two dimensions: ① Compared to the decline in asset prices following the introduction of &#34;equal tariffs&#34; in April, the current decline in asset prices is relatively narrow; ② Although the VIX index, which measures market panic sentiment, has risen, the current VIX index has not yet reached extreme levels in terms of either absolute value or change magnitude. We understand that when &#34;equal tariffs&#34; first appeared in investors' sights in April, the market felt more &#34;strange&#34; and &#34;at a loss&#34; due to the unexpected nature of the situation, leading all asset prices to choose to &#34;fall first as a courtesy&#34;; whereas this time, the market, having accumulated some experience, is more inclined to believe that the experience from April can be replicated, and there may still be some expectations for the upcoming APEC summit.
2 The experience since April is not just a simple &#34;bad news&#34; followed by a &#34;golden pit&#34;
The path of asset price recovery after April has been: under excessive pessimism in the market, trade issues repeatedly played out, repairing pessimistic expectations, along with the introduction of &#34;good news,&#34; such as the U.S. &#34;Big and Beautiful&#34; fiscal expansion bill, capital expenditures by tech giants, and fiscal plans in Europe, while China's anti-involution began to show signs around July. Our weekly report &#34;What Should Be and Potential Changes&#34; points out that the future U.S. economy may head down two different paths: service industry data indicates that the U.S. economy is entering the late stage of stagflation;
The manufacturing data is in the early stages of recovery.
Currently, as trade conflicts escalate again, the expectations for manufacturing recovery may be temporarily suppressed. The weakening trend in the service sector is already inevitable, and the technology sector, which previously thrived during the stagflation period in the U.S. service industry, may face correction pressure. Next week, attention should be focused on the upcoming third-quarter earnings season, particularly whether the U.S. technology sector will achieve the &#34;expectations turning into reality&#34; that is worth observing. The global demand for safe-haven assets may keep precious metals, represented by gold, relatively resilient, but the better scenario for gold is the physical inflation formed by the manufacturing recovery providing further support, while inefficient growth leads to continued expansion of government debt/GDP. Currently, when industrial products are troubled by demand concerns, precious metals also need to worry about the pressure brought by the rise of the U.S. dollar index under recession expectations; from a medium-term perspective, we have always believed that there is significant upward space for the global manufacturing cycle under the global interest rate cut cycle that has already begun, but the timing of its initiation is currently facing twists and turns.
It is worth noting that considering the valuation dimension, the valuation levels of major global stock indices have reached higher levels than in April. In the absence of excessive panic in the market that requires correction, whether global assets need to start reflecting the already downward fundamentals of the U.S. service industry and technology is an important question. Just as the core of the rebound that set new highs after April was not TACO, the current easing of conflicts alone is not enough to support continued upward movement. We expect that the adjustment of global risk assets will not be severe, but will instead require a longer time to digest.
3 Momentum Switching: No Fear, No Greed
Globally, there is currently no panic, but precisely because there is no fear, the higher valuation levels than in April mean there is no need for &#34;greed.&#34; For Chinese assets, the previous rise was more driven by the linkage with overseas technology, which has created vulnerabilities within A-shares and Hong Kong stocks in the short term. A-shares may face adjustments at the index level, but the extent is controllable.
In contrast, we suggest looking for more opportunities from the perspective of domestic policies (&#34;anti-involution&#34;) and the bottoming out of domestic demand. However, in the medium term, the recovery of global manufacturing activity and the upward trend of physical consumption remain the most important main lines: First, the direction of domestic demand will receive more market attention in stages: food and beverage, aviation and airports, real estate, etc.; Second, non-bank financials will benefit from the bottoming out and recovery of capital returns across society; Third, the recovery of manufacturing activity and accelerated investment in physical assets remain the most favorable assets in the medium term: upstream resources (copper, aluminum, oil, gold), raw materials (basic chemicals, steel).
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Report Body
On Friday, global risk assets fell broadly, with stock indices represented by U.S. and Chinese assets experiencing significant declines: 1) In the U.S. stock market, major indices recorded the largest single-day drop since mid-April, with technology stocks generally experiencing corrections, such as the Nasdaq index leading in decline and the prices of mag7 stocks significantly dropping; 2) In terms of Chinese assets, the Hong Kong stock market, which is more reliant on overseas liquidity, saw larger declines, while technology stocks that previously resonated with overseas markets began to experience significant corrections. In the commodity market, industrial metals, which are more closely related to the global economic cycle, led the declines, and international oil prices, also affected by changes in the Middle East situation, began to show significant corrections
Gold and digital currencies have once again diverged, with gold rising while major digital currencies have seen significant corrections. In the foreign exchange market, while the US dollar has marginally weakened, the safe-haven yen and Swiss franc have marginally strengthened. The fluctuations in asset prices this round are mainly due to disturbances from overseas risk events: on one hand, the US government has entered the 10th day of a shutdown, with the Trump administration breaking tradition by conducting permanent layoffs during the standoff, which may weigh on the US job market; on the other hand, a more direct catalyst is Trump's tariff threats against China, leading to a renewed escalation in US-China trade frictions, significantly lowering market risk appetite, reminiscent of the &#34;equal tariffs&#34; introduced in April this year.
<img src="https://imageproxy.pbkrs.com/https://mmbiz-qpic.wscn.net/mmbiz_png/8npuEFsWaVRjtWaK0OcxjUFpMGoEGaCbVWT6OkAswe480mUyGjtrdaumvTxp1NQeEKcYn2iaCzUNGCElQuiacWibw/640/query-ZnJvbT1hcHBtc2cmd3hfZm10PXBuZw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://mmbiz-qpic.wscn.net/mmbiz_png/8npuEFsWaVRjtWaK0OcxjUFpMGoEGaCbVWT6OkAswe480mUyGjtrdaumvTxp1NQeEKcYn2iaCzUNGCElQuiacWibw/640/query-ZnJvbT1hcHBtc2cmd3hfZm10PXBuZw"/>
From two dimensions: ① Comparing the magnitude of asset price declines: Although the S&amp;P 500 index recorded its largest single-day drop since mid-April on Friday (down 2.7%), the decline is relatively narrow compared to the asset price drops following the introduction of &#34;equal tariffs&#34; in April (the S&amp;P 500 fell 4.8% and 6% on April 3 and 4, respectively). ② The current VIX, which measures short-term market panic, is about 21.66. Although it rose by about 31.8% yesterday, both from an absolute value perspective (the VIX had already reached 21.51 before the announcement of &#34;equal tariffs&#34; in April) and from the perspective of change magnitude (the VIX index rose by 39.6% and 50.9% on April 3 and 4, respectively), it is clear that the current VIX index has not yet risen to an extreme level. We understand that when &#34;equal tariffs&#34; first appeared in investors' sights in April, the market felt more &#34;strange&#34; and &#34;at a loss&#34; due to the unexpected nature, leading all asset prices to choose to &#34;fall first as a courtesy&#34;; whereas this time, the market, having accumulated some experience, is more inclined to believe that the experience from April can be replicated, and the market may also have certain expectations for the upcoming APEC summit (October 31 to November 1).
However, with the emergence of more positive macro and industrial factors in the future, such as the fiscal expansion of the US's &#34;Big and Beautiful&#34; Act, capital expenditures from tech giants, and Europe's fiscal plans, as well as the initial signs of China's anti-involution around July, asset prices have gradually begun to recover since April, with most asset prices even reaching new highs for the year. Therefore, the recovery path of global asset prices after April is: under excessively pessimistic market conditions, trade issues have repeatedly played out, repairing pessimistic expectations, while &#34;good news&#34; has emerged, further strengthening the market's upward expectations
<img src="https://imageproxy.pbkrs.com/https://mmbiz-qpic.wscn.net/mmbiz_png/8npuEFsWaVRjtWaK0OcxjUFpMGoEGaCbbNn3maXVibhuSWxpT7PBsXpwKhxjE33M3gDY7r3XKQTxmkWwcTgvcWw/640/query-ZnJvbT1hcHBtc2cmd3hfZm10PXBuZw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://mmbiz-qpic.wscn.net/mmbiz_png/8npuEFsWaVRjtWaK0OcxjUFpMGoEGaCbbNn3maXVibhuSWxpT7PBsXpwKhxjE33M3gDY7r3XKQTxmkWwcTgvcWw/640/query-ZnJvbT1hcHBtc2cmd3hfZm10PXBuZw"/>
In our weekly report &#34;Entitlement and Potential Changes,&#34; we pointed out that the U.S. economy may follow two different paths in the future: service sector data indicates that the U.S. economy is entering the late stage of stagflation; while manufacturing data is in the early stage of recovery. Currently, as trade conflicts escalate again, the expectations for manufacturing recovery may be temporarily suppressed, and the weakening trend of the service sector has become inevitable. The technology sector, which has dominated during the stagflation period in the U.S., may face correction pressure. Next week, attention should be focused on the upcoming third-quarter earnings season, particularly whether the U.S. technology industry will achieve &#34;expectations turning into reality,&#34; which is worth observing closely. The global demand for safe-haven assets may keep precious metals, represented by gold, relatively resilient, but the better scenario for gold is further support from physical inflation driven by manufacturing recovery, while inefficient growth leads to continued expansion of government debt/GDP. Currently, when industrial products are troubled by demand concerns, precious metals also need to worry about the pressure brought by the rise of the U.S. dollar index under recession expectations; from a medium-term perspective, we have always believed that there is significant upward space for the global manufacturing cycle under the global interest rate cut cycle that has already begun, but the timing of its initiation is currently facing setbacks.
It is worth noting that considering the valuation perspective, after the rise in global asset prices since April, the current valuation levels of major global stock indices are already higher (for example, the latest price-to-earnings ratios for the S&amp;P 500, Wind All A, and Hang Seng Index are 29 times, 22.5 times, and 12 times, respectively, while the &#34;equivalent tariffs&#34; low in April were 23 times, 17 times, and 8.9 times). In the absence of excessive panic in the market that requires correction, whether global assets need to start reflecting the already occurring downturn in the fundamentals dominated by U.S. services and technology is an important question. Just as the rebound after April reached new highs was not primarily driven by TACO, the current easing of conflicts alone is not sufficient to support continued upward movement. We expect that the adjustment of global risk assets will not be severe, but rather will require a longer time to digest.
<img src="https://imageproxy.pbkrs.com/https://mmbiz-qpic.wscn.net/mmbiz_png/8npuEFsWaVRjtWaK0OcxjUFpMGoEGaCbbNn3maXVibhuSWxpT7PBsXpwKhxjE33M3gDY7r3XKQTxmkWwcTgvcWw/640/query-ZnJvbT1hcHBtc2cmd3hfZm10PXBuZw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://mmbiz-qpic.wscn.net/mmbiz_png/8npuEFsWaVRjtWaK0OcxjUFpMGoEGaCbbNn3maXVibhuSWxpT7PBsXpwKhxjE33M3gDY7r3XKQTxmkWwcTgvcWw/640/query-ZnJvbT1hcHBtc2cmd3hfZm10PXBuZw"/>
Globally, there is currently no panic, but precisely because there is no fear, the higher valuation levels compared to April mean that there is no need for &#34;greed.&#34; For Chinese assets, the past rise has been more driven by the linkage with overseas technology, which has created internal vulnerabilities in A-shares and Hong Kong stocks in the short term, and there is a possibility of index-level adjustments in A-shares
But the extent is controllable. In contrast, we suggest looking for more opportunities from the perspective of domestic policies (&#34;anti-involution&#34;) and the bottoming out of domestic demand. However, in the medium term, the recovery of global manufacturing activity and the upward trend of physical consumption remain the most important themes:
First, the direction of domestic demand will receive more market attention in stages: food and beverage, aviation and airports, real estate, etc.;
Second, non-bank financials will benefit from the bottoming out and recovery of capital returns across society;
Third, physical assets that benefit from improved operating conditions due to domestic anti-involution, the recovery of manufacturing activity after overseas interest rate cuts, and accelerated investment will still be the most favorable assets in the medium term: upstream resources (copper, aluminum, oil, gold), raw materials (basic chemicals, steel).
Authors of this article: Mingsheng Securities Mu Yiling, Wu Huimin, Source: Yiling Strategy Research, without fear or greed.
Risk Warning and Disclaimer
The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at one's own risk

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On Friday, global risk asset prices fluctuated significantly, but no panic was observed. Despite the sharp decline in U.S. stocks and Chinese stock indices, the market did not show excessive panic. Global assets need to respond to the downward fundamentals of the U.S. service industry and technology. It is expected that the adjustment of global risk assets will take a long time to digest. Layoffs by the Trump administration and threats of tariffs against China have exacerbated the decline in market risk appetite. Although the VIX index has risen, it has not yet reached extreme levels

- Global risk assets experienced significant declines on Friday, particularly in U.S. and Chinese markets, without triggering panic.  
- The current higher valuation levels compared to April raise questions about whether global assets should respond to the already declining fundamentals in the U.S. service and tech sectors.  
- While adjustments in global risk assets are expected to be moderate, a longer period of digestion is anticipated.

"Bad news" does not necessarily mean a "golden pit," Minsheng's Mou Yiling: No fear, no greed