The eleventh of July, two thousand twenty-five
《From Brazil to China: A Market Tour》
Nvidia and Bitcoin both hit record highs, copper hit a record high, silver reached a high for 14 years, and platinum reached a high for 11 years:
Trading value in the Chinese market reached its highest level since 4. It strengthened during the session but saw clear profit-taking, and closed relatively flat. The much-discussed urban-renewal-related trades also cooled noticeably; the market generally does not expect a new round of monetized shantytown redevelopment to actually be implemented.
Chart: Brazilian equity index after the tariffs
However, The event does not change our previous assessment: continuing to make new highs after the shock remains the expected path, although the trading cycle may be longer. Given the political inclination, Brazil may choose retaliatory action, introducing uncertainty. Lula has already responded—in a political tone—that retaliation would follow if necessary, but the market has paid no attention.
The uncertainty may lie not between Brazil and the U.S., but within Brazil, where Lula and Bolsonaro will certainly seize the opportunity to fuel a public-opinion clash.
(Everyone will learn more about and get to know Lula and Bolsonaro below)
As long as 1) U.S. Treasury yields decline, 2) the dollar remains weak, and 3) the fact that “agreements can always be reached at the last minute” holds
Then events of this kind remain opportunities to buy the dip.
In fact, Brazil’s exports to the U.S. account for only about 2% of its GDP, and the U.S. actually runs a trade surplus with Brazil, based on the reciprocal tariffs of 50%, growth calculations indicate a drag of about 0.3%-0.4% on GDP, so the actual impact is limited.
Chart: Brazil’s actual exposure to exports to the U.S. is limited
In addition, From the second half of this year until 10 25 next year (the date of the second round of Brazil’s election), the emergence of positive catalysts may increase significantly。Brazil’s election is scheduled for 26, in 10; at present, it looks mainly like a contest between two sides:
Chart: Current election odds pricing
The two candidates with a chance of winning are right-wing Tarcísio, who is highly favored by the domestic wealthy class, and the currently leading left-wing Lula.
Tarcísio is an economic dynamo who worked his way up step by step through practical achievements in infrastructure, logistics, and airports. His backer is Jair Bolsonaro (the person Trump criticized at the beginning). Bolsonaro is currently embroiled in political cases. The worse the cases turn out, the more likely he is to support Tarcísio, who will probably inherit his political legacy, Locally, the prevailing view is that Tarcísio’s taking office would bring exceptionally strong bullish momentum to financial markets.
Lula, backed by the broad low-income population, will likewise sharply increase fiscal spending before 10 next year to secure votes, which would also be good for equity indices, Whichever side ultimately wins, the outcome will have a positive effect on the market. The difference is relatively limited to the foreign-exchange market, because Lula’s stimulus policies could be unfavorable for the local currency.
On the timeline, next April is the deadline for confirming candidacies, voting takes place in October, and the period from April to October is the peak of election trading.
1. Back to thirty-five hundred
The Shanghai Composite closed above 3500 for the first time since 22, Historically, whenever the index has successfully broken above this level, it has often been followed by a significant market move, including the rally led by large-cap core assets in 20-21, as well as the bull markets of 07 and 15.
Chart: The Shanghai Composite closes at 3509.68
However, the divergence is much more severe this time, at present, only the Shanghai Composite, China Securities Index 2000, and the banking index have recovered their drawdowns since month 9 of year 24.The two drivers are clear: on one side, large banks (high dividends); on the other, small-cap stocks (the biggest beneficiaries of improved liquidity).
The real-estate index, driven by market speculation about a so-called “meeting to support the property sector that may be held next week”speculation drove it higher, and it also broke through a key level.
There’s something that needs to be said about this,
News and headlines are not the cause of price movements. Rather, once price action reaches a certain level, related news and headlines naturally emerge as a result In other words, these factors can exist every day if one wants them to, but whether they are mentioned essentially depends on the factors affecting price action.
As Stanley Kroll wrote in *The Professional Commodity Trader*:When a market move begins, the related events always emerge at the right time.
What ultimately determines market trends is always the risk-reward ratio arising from medium-term fundamentals.
For us, the price of the Shanghai Composite 50 matters more. A stable weekly close above 2760 is the primary condition for entering later:
Chart: The Shanghai Composite 50 will complete the final stroke on the weekly chart tomorrow.
2. Hong Kong, the Hang Seng Index, and Hong Kong real estate as canaries
In fact, setting volatility aside, if we focus only on leading indicators, Hong Kong’s real-estate market has always been a clear signal indicator.Mainland support for Hong Kong and the current decline in renminbi-market investors’ required yields (put more plainly, onshore capital remains willing to accept lower returns even though the risk is not lower) are becoming turning-point variables. This will further support and consolidate Hong Kong’s return to its position as a financial center, attracting people and capital (A-share companies listing in Hong Kong, Stock Connect, and so on), while also helping stabilize asset prices (real estate accounts for 5.8% of the Hang Seng Index).
The Hang Seng trade is about the canary’s return, supported by mainland China.
There is no denying that Singapore did deal a serious blow to Hong Kong over the past few years. This happened naturally under exceptional circumstances, but the trend is now nearing its end. After all, we have always been accustomed to keeping the initiative in our own hands.
Hong Kong’s return is a process in which the Hang Seng Index develops an independent trajectory. That process has not yet begun, but we are waiting.
3. Pricing power lies in the hands of new investors & the pricing rate for insurers
Actual pricing power in the market often lies in the hands of new investors. One factor is the reform of public-fund KPI assessments starting in May. Another is that some mainland insurers have already begun lowering their pricing rates. If, in the third quarter of 25, pricing rates are lowered further by 25 to 50 basis points, the dividend-yield threshold acceptable for equity investments in new business will also decline further. This means the property sector will remain within their investment universe even if dividend yields fall below 4%.
Note: Mainland life insurers continue to target stocks with dividend yields of 4% or above 4.5%, depending on the company, to meet their long-term investment return assumptions (generally set at 4%).
Chart: As of the first half of 2025, southbound funds’ holdings in Hong Kong real estate had risen by 1 percentage points to 2.4%
4. A brief follow-up on the semiconductors mentioned yesterday
As I said yesterday, semiconductors may be the next sector in the crosshairs, so any recent news about semiconductors and electronic products is worth watching.Given the current situation, phones and other consumer electronics may also be included, bringing the starting point of negotiations beyond the traditional scope of semiconductors (imports in this category are close to 4000 hundred million U.S. dollars).
However, Overall, the broad tariff picture is essentially settled:
There is upside risk, but the ceiling is far below the shock expected on Liberation Day.
Finally, here are some fun charts (we’re considering making this a regular daily feature—would you like that?).
1) On the declining appeal of U.S. assets:
Chart: So far this year, the number of times the dollar and U.S. stocks have fallen together is more than twice the number over the past 10 years
2) This chart should be Read this together with yesterday’s supplementary reading in Notes, “Tariffs of 50% on copper and 200% on pharmaceuticals?”, that is, companies are sacrificing profits to gain competitiveness another data point showing that Japanese automakers are cutting the prices of products exported to the U.S. at an unprecedented pace:
Chart: Trading price for market share
3) The quality of European corporate balance sheets, The left side of the chart below shows Coverage ratios have continued to decline over the past few years because higher interest rates have gradually been passed through to the average coupon cost of debt...but on a net debt/EBITDA basis (right side), European companies’ balance sheets remain relatively healthy compared with historical levels:
Chart: Overall, things look pretty good
4) June minutes, to be read alongside the earlier piece on the monetary policy framework, See the Notes guide: Notes250704, Monetary Policy Framework2.0: Second Monetary Policy Framework Review (https://t.zsxq.com/Te2DS）
Chart: FOMC June minutes
5) Some members of the private group asked whether the macro discussion could be made more practical, for example by highlighting what could be done in micro markets... While the market is focused on interest rates and Fed policy, U.S. equity investors should save the following chart for reference:
Chart: Correlation between each industry and the nominal yield on U.S. Treasury bonds with a maturity of 10 years
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Wishing you all the best.
2025.07.10
Note: All content in this article is for reference only, does not constitute investment advice, and should not be used as the basis for any laws, regulations, or regulatory policies. Investors should not use or rely on this information when making decisions.