Guosen: The "danger" of global asset liquidity and the "opportunity" of buying

Guosen released a research report stating that recently, both safe-haven assets and risk assets have experienced varying degrees of pullback. At the same time, the yield on U.S. Treasuries has stabilized and even decreased. The core logic of the current market is not about seeking safety, but rather about liquidity tightening, rooted in the U.S. government shutdown. After reaching highs in early October, the Hong Kong stock market is currently in a phase of valuation digestion. However, the core logic of the Fed's interest rate cuts is still in the process of being deduced with high certainty, which limits the downside potential for Hong Kong stocks. Recently, the accelerated growth of the U.S. M2 in September has strengthened confidence. The combination of mid-term liquidity bullishness and short-term bearishness is expected to bring investors a good opportunity to position themselves in Hong Kong stocks. Guosen's main points are as follows: The essence of the global multi-asset decline: liquidity tightening Recently, various assets have experienced significant pullbacks: S&P 500 and Nasdaq 100 futures have fallen below the MA20; the core broad-based indices in Japan and South Korea have significantly pulled back; gold has fallen below 4000; and cryptocurrencies have fallen below the annual average. Both safe-haven assets and risk assets have experienced varying degrees of pullback. Simultaneously, the yield on U.S. Treasuries has stabilized and even decreased. The above performance indicates that the core logic of the current market is not about seeking safety, but rather about liquidity tightening. The U.S. government shutdown has created a liquidity gap of $150-180 billion The root of liquidity tightening lies in the U.S. government shutdown. The logic is that when the federal government is shut down, their spending will decrease significantly, but their income will not. This means that the shutdown U.S. government continues to absorb funds from the economy but slows down the pace of returning funds to the market. It is estimated that the U.S. federal government shutdown will reduce annualized revenue by $85 billion, but can reduce annualized expenditures by $1.93 trillion, ultimately creating a $1.85 trillion funding gap in the private sector, absorbing $35.5 billion in liquidity per week. A five-week U.S. government shutdown would leave the market with a liquidity gap of about $180 billion. Observing the balance of the U.S. Treasury General Account (TGA), the balance increased by $152.9 billion from the last week of September to the last week of October. The U.S. federal government shutdown is expected to be resolved in the short term Currently, U.S. domestic investment banks expect the federal government to resume operations within two weeks. According to the Wall Street Journal, Republican Senator Markwayne Mullin is "very confident" that both parties will reach an agreement on fiscal issues this Wednesday to Thursday. At the same time, some Republican lawmakers believe that after Tuesday's local elections, the Democratic Party will no longer have a reason to continue to push on fiscal issues. U.S. stocks: The valuation is not expensive, the pullback is a good opportunity to position During the market pullback, doubts about U.S. stocks facing scrutiny based on metrics like P/E and market cap/GDP that have deviated from historical experience have been amplified, overlooking the long-term acceleration of liquidity. Based on the inherent yield model established by fundamentals, the reasonable valuation range for the S&P 500 is 6900-6950, and currently U.S. stocks do not have a significant valuation burden. It is believed that this pullback is a good opportunity to position oneself. Hong Kong stocks: The high certainty of interest rate cuts has not yet completely played out, and liquidity tightening is accelerating the valuation digestion process After reaching highs in early October, Hong Kong stocks are currently in a phase of valuation digestion. However, the core logic of the Fed's interest rate cuts is still in the process of being deduced with high certainty, which limits the downside potential for Hong Kong stocks. Recently, the accelerated growth of the U.S. M2 in September has strengthened confidence. The combination of mid-term liquidity bullishness and short-term bearishness is expected to bring investors a good opportunity to position themselves in Hong Kong stocks. Mid-level view: Focus on a combination of liquidity adversity and fundamental prosperity Industries that were strong before the liquidity crisis faced significant profit-taking pressures, but will face even greater opportunities after liquidity repair. Main recommendations: 1)Semiconductors: Storage chips are currently in a period of strong cyclical narrative, and the liquidity crisis will help release technical overbought pressure, creating a scarce window for chasing gains; 2) Materials: With a focus on non-ferrous metals. Gold will still benefit from a stable Beta (currency increase printing) + strong Alpha (alternative to U.S. Treasuries) process; Industrial metals continue to benefit from high demand prosperity. Risk Warning Uncertainty in the domestic political games between the two parties in the U.S.; Uncertainty in U.S. foreign economic and military policy; Uncertainty in the Fed's monetary policy.