In the ever-shifting landscape of global finance, the recent movements of Asian currencies, particularly in the face of a strengthening US dollar, have sparked concerns about trade barriers rising once again, especially with the induction of a new US presidentThe A-share market in China has exhibited an intriguing trend of independent growth amidst these global uncertaintiesInvestors are left to ponder the implications of these developments, especially with the upcoming European Central Bank (ECB) meeting that is likely to impact market dynamics.

The onset of a robust dollar has jolted various global currencies, with the offshore Chinese Yuan recently dipping to around 7.31 against the dollarSurprisingly, the Shanghai Composite Index and the Hang Seng Index have shown resilience, ending the last week up as if unaffected by the currency pressuresWhat’s driving this independent performance? A detailed look reveals several layers of complexity.

Firstly, the incoming US president has been outspoken in defending the supremacy of the US dollar on the global stage, making direct references to the BRICS nations, calling for the abandonment of any initiatives aimed at substituting the dollarThis stance is coupled with indications that the administration may resort to imposing tariffs as a countermeasureIn addition, the outgoing government has intensified its export controls on semiconductors to China, placing 136 Chinese entities on a so-called “entity list,” and imposing additional restrictions on exports of various semiconductor manufacturing equipment and software toolsThis marks a visible escalation of the underlying tensions between China and the US, painting trade frictions as a magnifying glass reflecting the vulnerabilities of global supply chains

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There is a notable shift in trade priorities, from “cost control” to “safety guarantees,” suggesting a potential restructuring of global trade patterns.

As currencies from various economies such as the South Korean won, Brazilian real, Indonesian rupiah, and Indian rupee hit new lows against the dollar in an attempt to counter the tightening trade environment, they aim to enhance the competitiveness of their exportsIn contrast, the Chinese Yuan has been more resilient, even as the Hong Kong dollar maintained its strength against the dollarThis resilience can be attributed to domestic factors; the anticipation of a more accommodative monetary policy is on the rise, combined with newly introduced self-regulation on deposit pricing, which could shift capital from bank deposits into bond-focused asset management productsNotably, the yield on 10-year government bonds in China briefly dropped below 2%, starkly indicating the widening pressure on the interest rate differential between China and the US.

Abundant liquidity is becoming evident as equity prices are on the riseLast week, the Shanghai Composite Index rose by 2.33%, the Shenzhen Component Index by 1.69%, and the ChiNext by 1.94%, with the Shanghai Composite leading the chargeThere has been a clear shift towards heavyweight stocks, reflecting a notable change in market dynamics, which highlights a robust interest from both domestic and international investors in China’s core assetsOn the sectoral level, high-dividend stocks and those linked to domestic demand have taken the lead, showcasing defensive attributes that support the market’s optimism surrounding potential domestic stimulation policies amid external risks.

Moreover, the rebound in offshore yuan after a period of depreciation alongside signs of stabilization in the Hang Seng Tech Index indicates a warming sentiment among foreign investors, who find increasing attractiveness in Chinese assets

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