Liu Yuhui: Alibaba Valued at Only One-Tenth of Amazon; Hong Kong Tech Stocks Will Be Repriced Sooner or Later; Volatility Release Creates Buying Opportunities

Recently, renowned economist Liu Yuhui appeared on the ChinaAMC DeepTalk livestream to share his insights on renminbi internationalization, US stocks, US Treasuries, and AI.

The editor from "Investment Homework Class Representative" has summarized the key points as follows:

1. The opportunities China currently faces are similar to those of the United States in the late stages of World War II.

2. From a global industrial perspective, there is only one trend: AI. In this process, China is full of opportunities, and the ultimate success of AI will undoubtedly belong to China.

3. Against the backdrop of the AI industrial revolution, I am very bullish on the future strength of the renminbi. The next five years constitute a "comfort zone" for China (and the renminbi); what we are waiting for now are conditions for significant global changes.

4. Newly appointed Fed Chair Warsh and Treasury Secretary Bessent are coordinating to create high volatility. The release of this volatility creates buying opportunities.

5. Valuations of Hong Kong-listed tech platforms are in a trough. Alibaba is valued at only one-tenth of Amazon, and it will be repriced sooner or later.

6. Gold will passively become a currency, with broad space for future value appreciation.

Below is the essential content organized by the editor of "Investment Homework Class Representative" (WeChat ID: touzizuoyeben), shared for everyone:

The Opportunities China Currently Faces Are Similar to Those of the US in the Late Stages of WWII

Host: Dr. Liu, in the process of renminbi internationalization, how should individual investors allocate their assets? From a medium-to-long-term perspective, what should individual investors pay attention to in asset allocation?

Liu Yuhui: Renminbi internationalization has created huge opportunities for both enterprises and individuals. We have entered a period of major restructuring in the global geopolitical structure, marked by competition between China and the US. The US is also making significant adjustments to its global geopolitics, promoting the Monroe Doctrine. Its National Security Strategy White Paper explicitly aims to reshape global interests and contract its focus to the Americas and the Western Hemisphere. The space vacated by the US provides a vast stage for China, including the space created by renminbi internationalization.

I often draw an analogy: the opportunities China currently faces are similar to those of the US in the late stages of WWII. The US seized the opportunity of post-war European reconstruction, launching the Marshall Plan and the Eurodollar program, thereby pushing the US dollar onto the global stage. Today, history is rhyming similarly. China also has the capability, backed by a massive industrial system and substantial official foreign exchange reserves. China's foreign exchange reserves peaked at $4 trillion in 2014 and have not increased since.

However, the accumulation China has achieved over the past decade is even more extensive, actually providing a very solid foundation for advancing renminbi internationalization in the future. Just like the Eurodollar program back then, through credit investment and the reorganization of global supply chains, Chinese enterprises and individuals can benefit from this strategic advancement.

The Ultimate Success of AI Will Undoubtedly Belong to China

Another major background is that, from a global industrial perspective, there is only one trend: AI.

In the three years since ChatGPT emerged in late 2022, Ren Zhengfei has called it humanity's last industrial revolution. Its depth and breadth of impact are incomparable to previous industrial revolutions. It not only brings productivity improvements but also faces the heavy responsibility of reconstructing a new set of governance and production relations for the AI industry.

In this process, China is full of opportunities, and the ultimate success of AI will undoubtedly belong to China.

AI is fundamentally different from the previous internet revolution. The internet revolution was about software eating everything, whereas the capital intensity and "hardness" generated by the AI industrial revolution far exceed those of the internet, possibly by more than 100 times. AI models, algorithms, and computing power are just the surface; what truly lies behind them are IDCs, tens of thousands of GPU cards, power grids, and efficient connections via various optical communications.

Moving into the physical AI stage, we see various edge-side intelligent robots, autonomous driving, smart devices, and smart factories. Tracing the chain behind these things leads to all global resources related to energy and AI.

However, having resource commodities alone is not enough; their value must be developed, which reflects superior industrial capabilities. Only China's industrial capacity can develop these resource commodities. Our rare earth elements serve as a good microcosm and a case study of fortification. China is leveraging this advantage to transform industrial capacity into digital assets domestically through electricity.

Open-source underlying large language models have directly created a new order of global trade that completely exceeds traditional imagination. Based on this, many aspects of the renminbi internationalization process will surpass our expectations.

The Next Five Years Are China's Comfort Zone for the Renminbi, Waiting for Global Changes

Because it is a completely new trade order and form, I am very bullish on the future strength of the renminbi against the backdrop of the AI industrial revolution.

Although the pace of advancement must be arranged to maximize national strategic interests, from a professional research perspective, the renminbi is currently the most undervalued currency. For example, I recently bought a hamburger and a bottle of mineral water at an airport for 10.8 euros. At Shanghai Hongqiao Airport, this might cost 30 yuan. The exchange rate ratio between the renminbi and the euro is effectively 1:8.

I believe the next five years are China's comfort zone. Although the renminbi may be strong, we are in a comfort zone. What we are waiting for now are conditions for significant global changes. Once the massive changes of the "super cycle" described by Dalio occur, which could happen in the next two to three years, China will already be prepared.

Volatility Release Creates Buying Opportunities; Hong Kong Tech Platform Valuations Are in a Trough

Host: Combining renminbi internationalization and changes in the AI industry, the next one or two decades may be completely different from the past. I also want to ask an investment-related question: How do you view major asset classes such as Hong Kong stocks, US stocks, and US Treasuries? What should individual investors pay attention to?

Liu Yuhui: Short-term volatility mainly comes from the US dollar tide. Because July, August, and September are peak periods for US Treasury issuance. The overall interest rate level in the US is very high, with the 10-year US Treasury yield around 4.6% and the 30-year yield above 5%. Inflation remains stubborn like psoriasis and will not subside anytime soon.

Newly appointed Fed Chair Warsh and Treasury Secretary Bessent are coordinating well. Recently, they have conducted very obvious expectation management, creating divergence in the market, breaking consensus, and generating high volatility. The source of this high volatility lies in today's highest-valued assets, certainly AI hardware, i.e., the Philadelphia Semiconductor supply chain. The volatility of these stocks has been released. The ebb and flow of the tide, the tension and relaxation, have also created buying opportunities for us to enter the AI industry cycle.

I personally believe that Chinese AI companies, especially the tech platform companies in the Hang Seng TECH Index in Hong Kong, have solid fundamentals. Their original internet core businesses have stable customer scenarios across various fields, stable cash flows, and these companies have money. Unlike the five major US cloud providers, whose free cash flow has been burned dry.

This group of Chinese tech companies has not encountered this situation; their revenue and cash flows are very stable. At the same time, they have accumulated substantial computing power in AI, with many companies building several clusters of ten thousand cards, laying out extensive investments that are generating rich premiums. Their financial cash flows are healthy and stable, with stable customer resources and scenarios. Currently, the prices are cheap.

Why is our Alibaba valued at only one-tenth of Amazon? Meituan has similar business operations, with revenue even four times that of its US counterparts, yet its market cap is only one-sixth. This state will sooner or later be corrected, and it presents an opportunity. I firmly believe that national fortune stands on our side.

Gold Will Passively Become a Currency, With Broad Future Value Space

From this perspective, the decline of the US dollar's fiat currency pricing power is a deterministic guide. Gold will be forced to become a currency. Because the pricing power of the US dollar fiat currency is collapsing, gold is being forced into monetization. The future value space for gold, placed in this context, is very broad. Although there was a mid-term correction after the early-year surge, the long-term space is very large. The trend of collapsing US dollar fiat pricing power cannot be changed, nor can the passive monetization of gold.

Volatility Risks in US Treasuries and Stocks Must Be Faced Seriously in Q3

Regarding US Treasuries, Warsh and Bessent, who manage the US economy, both come from Wall Street macro hedge fund backgrounds, not academia, and they have to deal with this difficult problem. Today, the US stock market is one with very high duration and is very large. According to the Buffett Indicator, the red line is 180, but the US has now reached 250. On one hand, there are highly valued US stocks; on the other hand, they also hope to achieve high valuations for US Treasuries—because Treasury interest rates are too high, they want to push Treasury yields up.

But simultaneously supporting two massive markets is something even God cannot do. Although their skills are high and they are balancing, I am skeptical about the outcome. Therefore, I believe that the volatility risks of US Treasuries and US stocks, especially in the second half of the year and the third quarter, must be faced seriously by everyone.

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