TechFlow News: On February 4, according to JINSHI Data, a research report by China International Capital Corporation (CICC) stated that, given the strong constraints imposed by the current operational dynamics of the U.S. dollar liquidity system and the prevailing trend toward large-scale fiscal expansion, it would be extremely difficult for any individual appointed as Federal Reserve Chair to reverse the normalization of balance sheet expansion. Although the Fed began expanding its balance sheet at the end of December last year—leading to marginal improvement in liquidity—the narrow measure of liquidity (i.e., bank reserves) remains far below the lower threshold of the “ample level.” Both quantitative and price-based indicators of U.S. dollar liquidity continue to signal a relatively tight state compared to levels since the pandemic onset; we believe this is the fundamental reason behind the recent market panic and sell-off. Under mounting pressures stemming from debt burdens, electoral considerations, and financial market stability, the identity of the next Fed Chair may matter less than previously assumed, and an expansionary liquidity trend appears highly probable. A sustained global asset bull market remains possible; within this context, we maintain our positive outlook for U.S. and Chinese equities—which stand to benefit directly from the structural improvement in U.S. dollar liquidity—particularly China’s equity market, which has been significantly underweighted by global active funds, as well as gold, silver, and copper.
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