China-US divergence continues: strong AI, weak consumption; easing geopolitics leads to lower crude oil and fluctuating Shanghai aluminum; domestic willingness for foreign exchange settlement and purchase declines in April --- 0527 Macro Highlights

China-US divergence continues: strong AI, weak consumption; easing geopolitics leads to lower crude oil and fluctuating Shanghai aluminum; domestic willingness for foreign exchange settlement and purchase declines in April --- 0527 Macro Highlights

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  1. Both the US and China markets show a divergence, with AI tech growth sectors reaching new highs and value sectors such as consumption performing poorly. In terms of asset ranking, attention should be given first to the AI chain in the medium and long term, followed by global pro-cyclical assets, gold, and bonds. In the short term, the AI industrial chain is in a stage of high consensus and overcrowding.
  2. Due to rising expectations for US-Iran negotiations, crude oil prices have fallen. If substantial progress is made, prices may sharply correct before returning to fundamental tightness, leaving limited downside. Shanghai aluminum fluctuates amid eased geopolitical tensions, with stable domestic production, but expanded Middle East conflicts disrupt overseas aluminum supply. Supply and demand expectations are expected to tighten, and aluminum price centers may continue to move up.
  3. Domestic cross-border capital flows have returned to net inflow. In March, net outflows occurred due to geopolitical tensions, but April has seen obvious improvement with both settlement and purchase willingness declining. In Hong Kong's property market, prices have been rising for over 11 consecutive months from the 2025 lows, with RMB appreciation boosting purchasing power, and talent introduction policies driving housing demand.

I. Continued Divergence Between China and US: Strong AI, Weak Consumption

Continued Divergence Between China and US: Strong AI, Weak Consumption (Huatai)

Huatai pointed out that both the US and China markets show a divergence pattern with AI tech growth sectors reaching new highs and value sectors such as consumption underperforming. For asset ranking, priority should be given first to the AI chain in the medium and long term, followed by global pro-cyclical assets, gold, and bonds. In the short term, the AI industrial chain is in a high consensus, highly crowded stage.

  1. Both US and China markets are seeing AI tech growth sectors hit new highs, while consumption and other value sectors are underperforming, and the divergence is widening.
    • From a corporate earnings perspective, AI has moved from a theme investment to a performance verification stage, with hardware sector benefits realized first and beginning to spill over to other industries, while domestic real estate and consumption are still undergoing destocking cycles.
    • For China, external demand has become the main economic driver, while overall domestic demand recovery is weak.
  2. In terms of asset ranking, priority should be given to the AI chain, global pro-cyclical assets, gold, and lastly bonds in the mid-to-long term.
    • In the short term, AI-related industrial chains are in a stage of high consensus and crowding—marginal easing of US-Iran tensions might increase volatility.
    • Driven by AI investment demand, the global manufacturing cycle continues to recover despite high interest rates and high oil prices, and the previous pattern of services PMI outperforming manufacturing PMI is being reversed.

On the capital side, broad-based ETFs in China experienced redemptions, while sector ETFs and momentum strategies continue to attract capital, amplifying the divergence.

II. Geopolitical Easing Leads to Oil Drop and Shanghai Aluminum Fluctuation

Geopolitical Easing Leads to Oil Drop and Shanghai Aluminum Fluctuation (CITIC)

CITIC pointed out that rising expectations of US-Iran negotiations led to a drop in crude oil prices. If substantial progress is made, after a sharp correction, prices would revert to fundamental tightness, so there is limited downside risk. Shanghai aluminum is fluctuating as geopolitical tensions ease, with stable domestic production capacity but overseas supply disruption due to escalating Middle East conflicts. Supply and demand expectations are expected to tighten, and the aluminum price center may continue to rise.

  1. Crude oil prices fell mainly due to heightened expectations of US-Iran negotiations.
    • On May 26, INE main crude oil contract fell 3.1% to 602.3 yuan/barrel.
    • US Secretary of State Rubio stated there’s still a chance for a US-Iran deal, with all parties beginning to discuss initial agreement terms in Qatar.
    • The Iranian Revolutionary Guard announced that in the past 24 hours, 32 vessels passed safely through the Strait of Hormuz with permits.
    • Overseas refined oil inventories remain low, the peak season is approaching, and refinery operating rates are climbing—crude oil inventory draws are accelerating.
    • If negotiations make substantial progress and strait shipments recover, oil prices could sharply correct but then return to a fundamentally tight market, with limited downside and high volatility.
  2. Shanghai aluminum fluctuates amid eased geopolitical conflict.
    • On May 26, the main SHFE aluminum contract rose 0.5% to 24,570 yuan/ton.
    • Supply-wise, domestic completed capacity is stable and smelting profits are high, but Middle East conflicts are disrupting overseas aluminum supply and marginal output cuts have increased.
    • On the demand side, weekly initial operating rates fluctuate and spot prices are at a discount.

It is anticipated that limited new domestic capacity, rigid overseas production constraints, and significant Mideast production cuts will tighten supply and demand expectations, with the aluminum price center likely to keep rising.

III. Settlement and Purchase Willingness Both Declined in April

Settlement and Purchase Willingness Both Declined in April (Ping An)

Ping An pointed out that domestic cross-border funds have returned to net inflow. In March, net outflow occurred due to geopolitical turmoil, which obviously improved in April, with both willingness to settle and purchase foreign exchange declining. Regarding Hong Kong's real estate market, housing prices have rebounded for over 11 consecutive months from the 2025 low, the appreciation of the RMB has boosted purchasing power, and talent introduction policies are driving housing demand.

  1. Domestic cross-border capital returned to net inflow in April.
    • In April, banks had a foreign exchange settlement surplus of US$40.1 billion.
    • In March, geopolitical tensions triggered market volatility and net capital outflow, but net inflows resumed in April.
    • Due to the capital and financial account surplus turning positive and a large trade surplus being maintained, the foreign exchange settlement surplus expanded.
    • Both willingness to settle and purchase declined, as market participants are more likely to use foreign currency income directly for overseas payments, rather than frequently exchanging RMB through settlement and purchase.
  2. Hong Kong home prices keep rising, with first-hand transactions at a record pace.
    • Since the 2025 low, home prices have risen for over 11 consecutive months, with a cumulative increase of about 15%.
    • Drivers include fundamental recovery—GDP grew by 5.9% year-on-year in Q1 2026, the best in nearly five years.
    • Mainland buyers remain active, and RMB appreciation enhances purchasing power.
    • Talent introduction policies have driven up housing demand from professionals, top talent, and mainland students.

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