Yang Tianxia: The market views Trump as Reagan; the most certain thing is the US dollar. Even if Musk succeeds, it will not reduce the deficit

Since Trump won the election at the beginning of the month and the Republican Party swept to victory, the "Trump trade" has swept the global market, becoming the dominant factor for global asset classes. As Trump gradually announces his cabinet selections, global investors have begun to look ahead:

What will be the subsequent developments of the Trump trade? What factors will influence it?

How will Trump's policies and cabinet selections affect the market?

Will the market replicate the performance of the Trump 1.0 period in 2016?

How do foreign investors view the Chinese market?

With these questions in mind, Gu Chengqi, president of Wall Street Insight, Zhu Chen, founder of Zhibao, and Yang Tianxia, CEO of Variant Perception, engaged in an in-depth dialogue.

Yang Tianxia worked as a trader at Bank of America for nearly four years before joining Variant Perception, an American investment firm that combines macro and quantitative trading, emphasizing the construction of investment frameworks using economic leading indicators and capital cycles in industries to select the most attractive investment targets in the macro and equity fields.

In the dialogue, Yang Tianxia's main points are as follows:

1. The overall picture of policies after Trump takes office will be very similar to that of Reagan in the 1980s. Although there will definitely be many differences in details, the key points from a broad perspective are tax cuts, deregulation, and bringing manufacturing back to the U.S., investing in the U.S., developing the U.S. economy, and emphasizing America First.

Previously, when Honda built factories in the U.S., many thought it was impossible because Japanese factories were efficient while U.S. costs were high. But in the end, Honda succeeded, possibly due to some "premonitions," and a few years ago, TSMC also began relocating factories to the U.S.

The most critical factor is the strength of the dollar, as it attracts capital to the U.S. Other aspects will depend on specific execution, as uncertainty remains high.

1. The so-called "big picture" may represent the major trend for the next two to three years, but in the short term, such as 1 to 3 months, market positioning is still very important.

This wave of the Trump trade is because the market was not too surprised by Trump's victory; the overall market price trends, including the betting market, were betting on Trump winning. Therefore, another wave may be similar, and it is expected that there will be some adjustments in the market in the next month or two. The next wave of the Trump trade may only occur after Trump officially takes office in January and policies are implemented. Basically, everyone feels that "now is the so-called time window."

Currently, Trump has not taken office, so there is a lot of room for imagination, and the market is basically focusing on all positive things. For example, his nomination of Matt Gaetz as Attorney General may be seen as 90% not necessarily a clear good thing, but people are not paying much attention to it.

1. In Trump's cabinet, the Secretary of the Treasury may be very important for the entire market and trading going forward, and it has not been announced yet. For example, the implementation of tariff-related policies; if a more pragmatic person like Scott Bessent is chosen, who also comes from an investment background, the market can breathe a sigh of relief, "Overall, economic policies will not collapse." If Trump places his loyalists, like Lighthizer, who are very ideological and principled, into every department and implements significant disruptions, it could get quite chaotic.

2. The uncertainty is that if Musk and Ramaswamy's DOGE (Department of Government Efficiency) truly deliver on their promises, it would indeed enhance fiscal efficiency, but the savings may not necessarily be used solely to reduce the deficit; they might spend it elsewhere. Historically, very few politicians or governments return money to the public after improving fiscal efficiency.

Overall, the deficit may remain at a certain level, and inflation may not be too high, which represents a so-called "window of opportunity," leaning towards a Reagan-style "window of opportunity," but ultimately it depends on how Trump executes once he is in office.

1. In 2016, Trump had a characteristic that set him apart from other presidents: he was very concerned about the S&P's performance, which was a KPI for him. If the S&P index plummeted, Trump would certainly realize he made a mistake and would adjust, but other presidents were not as sensitive to it as he was.

2. From the perspective of macro capital flows and economic analysis, it is clear that the dollar should strengthen while the renminbi should weaken, with tariffs acting as a catalyst. However, corresponding positions are also in place, and any intervention by the central bank would lead to adjustments. If China's fiscal policy stimulates consumption, the stock market will rise significantly.

The Chinese position involves going long on stocks while also going long on the dollar against offshore renminbi, and then trading around these two positions. Forex trading can continuously roll over options, and the forward exchange rate of the dollar against offshore renminbi is already very low, making it a good buying point.

1. Investors may focus more on the recoverability of capital rather than just the returns on capital; many may no longer look at valuations or yields, nor at the economy or company fundamentals. They no longer view Hong Kong stocks and other assets through traditional value or economic analysis frameworks. What everyone is most concerned about is whether they can get their money back after investing, or reputational issues. After making some money, do their investors recognize it?

There is a political factor; for foreign investors, Russian assets have been very cheap since the early 2010s, with PE ratios around 5. Many people invested, claiming there were many high-quality assets with low valuations. At that time, Russia had many stocks related to the internet concept, but suddenly one day, some companies disappeared as early as 2014, and by 2022, sanctions were imposed overnight. Regardless of valuations, holdings became zero, which is something that happened in recent years.

Therefore, they must first understand that China has a stable policy environment and that investments can be recouped. Once this is realized, everyone can recognize that valuations are not that high, and China certainly has some good assets.

1. The probability of U.S. Treasury rates skyrocketing is not particularly high, because first, there is no clear inflation issue; rates usually rise when the economy is doing well, and regardless of who the Federal Reserve Chair is, they will ultimately intervene.

A drop in gold often signals that inflation risks have diminished somewhat. Another aspect of gold may be its role in hedging geopolitical risks, which may also have decreased. The most likely disappointment in Trump's dealings would still be bond yields, which are unlikely to soar too much, especially the likelihood of U.S. Treasury yields rising is minimal

In fact, the money supply of G20 countries is not as large as imagined, so the gold price is instead in a fair range and is likely to remain stagnant for the next year or two.

But it's hard to say; the key depends on whether Trump acts according to the rules after taking office. If the first thing he does is to cut taxes and deregulate, and then possibly negotiate using tariffs, overall it would be quite good. If he takes office and seeks revenge on the Democrats, making them take responsibility for (previous matters), the market's reaction might not be good.

1. Personally, I'm not particularly fond of the life of a trader. This profession depends on how much the other party enjoys playing games; if someone is good at games like Dota, being a trader is a more suitable career path. At that time, I felt that there was too much information stimulation in that environment, leaving little space for longer-term thinking. If one wants to engage in some deep thinking work, it might be necessary to step back to an analyst position, where one could spend a day looking at just a few reports to think about issues without being influenced by market fluctuations.

I have a deep impression of a very critical non-farm payroll data in the U.S. that came out on a Friday. Every month, it is the most important data in life until the next month. When the data was released, the market fluctuated greatly, and by the end of the day, it returned to its original position. I felt at that time that it wasn't very suitable for me.

So I started to deliberately transition early, trying to find a way to learn many aspects of things, to engage in what is called deep thinking. But ultimately, it still comes from my childhood dislike for playing such games, and I am not suited for this. For example, when we are now recruiting traders, we will also ask others what games they play.

Stepping back, if one were to pursue this career path, one good thing is that almost all the knowledge learned appreciates; in many industries and jobs, the human capital you acquire is actually amortized, and the things taught at the beginning will be eliminated over time.

But one great thing about the investment field is that you can continuously encounter new things, new investments. For instance, we engage in a lot of quantitative and macro work, with many fundamental models, and we can also access a lot of political data and models, discovering that knowledge is very interesting. After learning more, it accumulates, which is an appreciation. This is one aspect that attracts me to continue in this industry; if it were just for making money, there are many (other) fields.

In the analogy of games, the most critical aspect of investing is to understand what the game rules are. This is something AI may not be able to do temporarily, as the game rules tend to change a bit. Once you understand the game rules, then utilize quantitative AI tools, combining the two will extend your value sustainability.

The following is a summary of the entire dialogue:

Factors Influencing Trump Trade and Subsequent Market Performance

Gu Chengqi:

We see that the market is currently most concerned about the so-called "Trump trade," which may involve more dollars, more bitcoins, and shorting U.S. Treasuries, while also observing the rapid decline in gold. We want to understand how the first-tier market in the U.S. views the current Trump trade and what factors will be closely monitored that may influence the subsequent development of trading? Yang Tianxia:

I think the most critical factor right now is inflation. The leading indicators we can observe moving forward generally only reflect the past 6 to 9 months. The trend of inflation is basically no longer on the rise; it’s just that the inflation level may remain high.

In this context, I believe the market's overall reaction is reasonable because if we rank the key characteristics of Trump's policies by importance, the first point is tax cuts, followed by regulatory aspects, and then the impact of U.S. fiscal policy on inflation.

From this perspective, the dollar rises, then the stock market rises, which overall aligns with these characteristics.

Bitcoin is a separate matter; after all, he is the first president to recognize cryptocurrency significantly, mainstreaming it and bringing it into the political arena, which is also quite reasonable.

Regarding the decline in gold, it may be that people have many concerns about the Democratic Party's fiscal deficit policies, leading to a significant rise in gold prices. Therefore, after Trump took office, gold actually fell a bit, which is reasonable overall.

I think the market should be very optimistic about Trump, which has led to rising yields, a rising stock market, and a rising dollar.

Gu Chengqi:

You just mentioned everyone's attention to the sequence of Trump's policies. As a Chinese investor, people are also very concerned about his actions regarding tariffs. In your view, how will the sequence of these policies impact or signify for investors' subsequent trading?

Yang Tianxia:

Since he has already been in office once in 2016, we can look at the overall process and see how it compares to 2016. This time, his public mandate is relatively large; after all, he won the popular vote in the election and achieved a relatively absolute victory in both houses of Congress.

So, the so-called establishment of the Republican Party may not constrain him as much as in 2016, so his policy execution should face less resistance, and he should be able to accomplish more.

But the key point is that there will be an election every two years, namely the midterm elections. If the Democrats manage to "take back" Congress, it will certainly impact his policy agenda. Therefore, we need to look at what he actually accomplished in 2016. He completed tax cuts because both those who oppose the old system, like Trump, and those within the old system all recognize this point within the Republican Party.

So I think the first priority is tax cuts and deregulation, which can be supported by both factions, and anti-immigration is also widely recognized, which can be accomplished by either side.

Regarding tariffs, I think there are actually divisions. Those who truly emphasize trade and the market may not directly impose tariffs; they might approach it with the attitude of the 1937 trade war. I think they might be more inclined to say, "Okay, tariffs are a negotiation strategy." Trump himself has said this; he stated, "I impose tariffs mainly to attract foreign companies' funds to the U.S. and encourage investment in America."

**My personal view is still very close to the big picture after Reagan took office in the 1980s. There will definitely be many details that differ upon closer examination, but stepping back to see the big picture, the key points are tax cuts, deregulation, bringing manufacturing back to the U.S., investing in the U.S., and emphasizing America First **

When Honda went to the United States to build factories back then, everyone thought it was impossible. Japanese factories are so efficient, and the costs in the U.S. are high, so they wouldn't do well. Now Honda is also manufacturing cars in the U.S., and there are already some signs that should be considered precursors, such as TSMC, which also started moving factories to the U.S. a few years ago.

At first, everyone said, "The costs are very high, the efficiency is very low, and they won't do well." But now they have achieved good results, and it's obvious that their yield has improved. So I think taking a step back is actually the biggest picture.

The key point is that the dollar will be relatively strong because it will attract funds, which may be the most critical factor. Other things depend on how execution goes, as there is still a lot of uncertainty.

Zhu Chen:

Just now, I mentioned that since this round of Trump trades, both the dollar and U.S. Treasury yields have been rising, which brings back some bad memories for me. When Trump came to power in 2016, I was also doing some research, and my judgment was that the dollar and U.S. Treasury yields would trend strong.

But by 2017, I remember that on one hand, Europe was easing, while the Federal Reserve was accelerating tightening. That year, the euro performed even the best in ten years, while it was relatively weak at the beginning of the year. However, subsequently, due to its easing, the exchange rate became relatively strong, and U.S. Treasury yields that year also failed to break through the market consensus expectation, which was to rise from 2.5% to 3%, but it didn't happen.

That was a frustrating year for me, so I think this may relate to the sustainability of the current Trump trades. Now everyone might feel that before January next year, there is a time window. Tianxia, how do you consider this at this point?

Yang Tianxia:

Yes, I think negotiation is very important. The big picture we talk about may be a major trend for the next two or three years, but in the short term, such as 1 to 3 months, market positioning is still very important.

I think the market is not too surprised by Trump's victory. Overall, the price trends in the market, including the betting market, indicate that Trump will win. This recognition was already there before this event, so if Trump has another wave afterward, it may mean that it's about done, and the positions have already been pulled up. It feels like the last wave is pulling in the last people, and I estimate that in the next one or two months, there may be some adjustments.

Then when Trump actually takes office in January and the policies are truly implemented, there may be the next wave. From any news, reports, or analysts I see, basically everyone feels "ok, now is the so-called time window."

He hasn't taken office yet, and there is a lot of room for imagination. Everyone is looking forward to the best; everyone is. There are always positive and negative aspects, and the market basically puts all the positive and good things in sight, emphasizing this point. For example, this week (on the 13th local time), he appointed Matt Gaetz as Attorney General, and 90% of people might think this is not necessarily a good thing for assets, but everyone might not care too much about it.

I think the long-term trend may be there, but in the short term, there may be adjustments. It’s just about how to position in the market during short-term fluctuations. I think going long on the dollar is still the most obvious, while other things need to be looked at in detail

How Trump's Cabinet Selections Affect the Market?

Gu Chengqi:

You just mentioned the U.S. Attorney General and the Secretary of Defense; Trump's cabinet selections have actually shocked the entire industry.

I want to understand how your front-line team is paying attention to the changes in his cabinet selections, which are very important for the entire market and trading going forward.

Additionally, we also see the importance of Musk's role; what do you think about Musk's influence?

Yang Tianxia:

I think this election is a very important time point and event in the grand history of the United States because, since Trump started in 2016, it has been somewhat evident that his political base is no longer strictly left or right; he has actually restructured it. His supporter base is somewhat similar to Obama's back in the day, completely restructuring it to include young people, the poor, or those without a college degree.

If you look at it from the highest level, there is this change, but if you look further down, the most critical figure that no one talks about much is probably Robert F. Kennedy Jr. He ran as an independent candidate before, and I think he is a very, very key figure because he has strong support among young people, but the traditional establishment, especially the left of the Democratic Party, has portrayed him as a crazy person, ruining his reputation. However, he actually has high support among young people, including those I know in the U.S.; this is a relatively significant change.

In fact, the establishment versus anti-establishment is the most critical point, so looking at Trump's selections, they are basically anti-establishment, truly aiming to overturn the entire system, which has public support for this kind of upheaval; I think this is still a very different point.

Trump himself said in 2016 that he surrounded himself with many old Republicans like Romney, and of course, he couldn't get things done, so this time he definitely needs to change his approach, so I think this is still a very critical point.

Many government agencies in the U.S. also need reform, but this kind of thing may not be talked about much in mainstream media. However, after all, Trump won the popular vote by such a large margin; if you go out and take a look, many people support this need for government reform. Of course, Musk is reported more in mainstream media, but if you look behind the scenes, people like Peter Thiel are very critical.

Moreover, from many perspectives, it makes sense. For example, with so many large tech companies in the U.S., like Google and Microsoft, they have so much data, talent, and technology; why not put this into government agencies to operate? Why keep them separate? This makes government agencies very inefficient. Now they have figured out a series of ways to process information and how to operate, so I think this is actually a struggle between the old and the new, with new technology replacing old technology, which is still a relatively significant change.

If he (Trump) continues along this path, it should be quite optimistic for the long-term trend in the U.S.; it should be a very positive thing.

But after all, the establishment is quite stubborn, so there will definitely be a fierce backlash; this will definitely happen. Who is more critical? The next one might be the Secretary of the Treasury, which has not been announced yet, and I think that is still quite crucial For example, when it comes to tariffs, how to implement this policy? If we choose someone more realistic, like Scott Bessent, who is also an investor and comes from a financial background, with a more pragmatic mindset, we can breathe a sigh of relief, thinking "okay, overall, economic policy won't collapse." However, the catalysts for the necessary reforms are already in place, which could be relatively positive overall.

If Trump appoints his loyalists, like Robert Lighthizer, who is very ideological and principled, and if every department undergoes such significant upheaval, it could lead to chaos.

Gu Chengqi:

There is a very key department here. Besides the Treasury Department you mentioned, the other department is the Federal Reserve. What impact do you think Trump will have on the Federal Reserve?

Yang Tianxia:

Going back a few hundred years, when central banks were first invented, they were actually there to support the treasury and the central government, helping the government with debt financing. It wasn't until the 1990s that the independence of central banks became a thing.

So, historically speaking, the true independence of central banks is actually quite a special and rare occurrence. For a long time, monetary policy and fiscal policy were essentially unified. I don't think we can say that central bank independence is an absolute concept; it's a phenomenon that has only existed for the past 30 years.

Therefore, I think it's just about bringing this back to its original track. The central bank certainly needs to care about inflation, but its most important task is to help the government with financing.

These figures like Trump may have some personal friction and discomfort, but in the big picture, it still means returning to the original track.

So it's just that Trump makes things more obvious, or not. I feel that Trump speaks more clearly. When it was Biden, Yellen, and Powell, would the central bank still intervene? Back in 2020, when there were issues in the treasury market, it also intervened. So the market may react in the short term, not liking it very much, but in the long term, the trend is that fiscal and monetary policies are meant to be unified in execution.

Will Trump 2.0 be an economic combination similar to Reagan's big cycle?

Gu Chengqi:

I would like to extend this a bit. You mentioned the Reagan era earlier. If the central bank had previously cooperated with the U.S. Treasury's actions, it ultimately led to a combination of high growth, high interest rates, high inflation, and high deficits.

Do you think in the era of Trump 2.0, it will be a similar economic combination to Reagan's big cycle?

Yang Tianxia:

The key is to return to inflation. Our leading indicators for inflation are difficult to see beyond 6 to 9 months. So where will inflation be a year and a half from now? There are too many factors that are not visible, but what we can see now is that the inflation risk is not that high, slightly above the central bank's inflation target, but not out of control. As long as this situation persists, the overall probability of interest rates skyrocketing is not very high.

In this way, the Federal Reserve will not need to react excessively; it just means that the room for rate cuts may not be that much, and there is no rush to raise rates. It will be relatively stable, and interest rates won't rise too much. However, if the overall environment is good enough to attract funds to the U.S. and strengthen the dollar, this could be somewhat similar to the analogy with Reagan The point of uncertainty is that if Musk and Ramaswamy's DOGE (Department of Government Efficiency) really delivers on its promises, it will indeed improve fiscal efficiency, but the money taken out may not necessarily just reduce the deficit; they will find other places to spend it.

Historically, very few politicians or governments have said that after improving fiscal efficiency, they would return that money to the public; they will find other places to spend it.

So overall, the deficit may remain at a certain level, and inflation may not be that high, which is a so-called "time window," leaning towards a Reagan-style "time window." Ultimately, it still depends on how they execute once they are in office.

Gu Chengqi:

So the market's original view was that if the Republicans sweep, it could lead to a situation with the highest deficit. Are you suggesting that with someone like Musk, it might lead to a deficit that is not as high as the market expects, but still stimulate the economy?

Yang Tianxia:

I personally feel that it is actually the Democrats sweeping that would lead to a drop in the dollar and the largest fiscal deficit, as the Democrats may have a less efficient way of spending money.

In the case of a Trump sweep, there would still need to be regulation and tax cuts, such as the cancellation of environmental regulations and an increase in crude oil production, which would actually have a certain offset effect. After all, the Senate Majority Leader elected is Thune, not Rick Scott.

People domestically may be more concerned about Rick Scott, who is definitely very tough on China; he is a die-hard Trump supporter. However, the person elected is an old-school Republican, so for Trump to accomplish his agenda, he will definitely need the establishment to cooperate with him a bit, which may still constrain the most extreme elements. Therefore, some Republicans may feel that the fiscal deficit cannot continue like this and will need to find some ways to address it, so the final effect may not be that significant.

I thought of one point: the key thing to note is that Trump in 2016 had a characteristic that was different from other presidents; he was very concerned about the S&P's performance. If the S&P index plummeted, Trump would definitely know he made a mistake and would adjust. This is a KPI for him, which is different; if something really goes wrong during his execution and the market reacts a bit, he will adjust, unlike other presidents who are not as sensitive.

The stock market may replicate the performance of 2016, while oil prices are difficult to predict

Gu Chengqi:

There is a structural issue here because we see that the policy mix in 2016 also aimed to achieve certain goals, but the market's final reaction was that large-cap stocks, especially tech giants, gained greater benefits from tax cuts rather than small-cap stocks. Ultimately, the tech giants saw significant growth in the subsequent market cycle.

At the same time, he has always said he hopes to increase oil production as a very important means to lower inflation. The market is clearly still very excited about small-cap stocks, which may be quite similar to 2016. Do you think we will see a replay of the final trend of 2016, returning to large-cap stocks and the MAG7? And how do you view the impact of rising U.S. crude oil production on oil prices?

Yang Tianxia:

This is also highly uncertain, but I think it may resemble the market trend of 2016 because, after all, the fundamentals of small-cap stocks are not good. If you choose some relatively strong companies among small-cap stocks, it would be a good idea But now there are basically several major structural issues. First, some relatively excellent or fundamentally strong companies are no longer choosing to go public; we are now in an era of private equity financing. Many high-quality companies have been sitting in PE funds for a long time, and in the end, they may just be sold back and forth among each other or directly acquired by large tech giants. Therefore, the quality of companies in the small-cap index is not very high.

Secondly, these small companies are sensitive to interest rates. When U.S. interest rates rise, large companies with strong balance sheets are not affected. It is the small companies that really need to borrow money and face interest rate pressures. They also have to deal with tariffs, which have a significant impact on them, and they cannot cope with these challenges. These structural factors may lead to small-cap stocks consistently lagging behind large-cap stocks in the long term, as it has become a winner-takes-all environment.

However, one aspect where small-cap stocks are definitely optimistic is regulation. The more regulation there is, the more advantageous it is for large companies, as small companies do not have the funds to comply with so many regulations. Therefore, there may be a short-term rise in small-cap stocks, which is why people are optimistic, but it is essential to filter within the small-cap space.

After all, the small-cap stocks that can go public are not the most outstanding companies, as the best small companies are currently not going public and will remain in PE until the end. This is also due to many structural factors, which are not as obvious as they were back in 2000. The quality has changed significantly.

Gu Chengqi:

What about oil prices?

Yang Tianxia:

Oil prices should be very difficult. Trump increased supply, while OPEC is limiting supply and not allowing it to rise. Additionally, China is no longer keen on buying oil and is moving towards renewable energy.

On a broader scale, demand is not there, and supply continues to increase. I believe the result will be a drop in oil prices, which will need to fall to the point where the U.S. activates its strategic petroleum reserve, and Trump will have to buy oil for the government again. Then Trump will say, "OK, we need to replenish reserves," and at that point, oil may hit bottom.

I find it hard to see how oil prices could rise unless they undertake a lot of infrastructure projects, but that depends on the policies they announce later.

Opportunities in the Chinese Market

Zhu Chen:

Recently, aside from Trump’s trades, another theme in the market is the shift in Chinese policy. Is it currently seen as a significant trend in overseas markets, or are many institutions treating it merely as a tactical opportunity?

Yang Tianxia:

It is still a trading opportunity; in the short term, it is still about seizing that wave, but the speed of the rise is faster than anyone expected.

That wave has ended, and now we need to look at reality and see the results. Foreign investors may still have a mindset focused on the actual implementation of this aspect.

There is still some hope. When the policy truly reaches a turning point, the speed of implementation and the actual effects will not be something that can be seen in just a day, a week, or even two months.

It’s just a matter of whether this trend exists and whether asset prices will be pulled up by expectations. Therefore, since it has already been sold off for such a long time, this wave may feel like it will pull up a lot Many overseas investors view China through a Western lens, which leads to a continuous wave of excitement in buying; overall, the trend is still leaning towards a positive direction.

Zhu Chen:

Currently, the domestic market is in a process of aligning expectations with reality. There is quite a bit of volatility, and from the recent market trends, it has actually been a surge followed by a pullback. Moreover, the market is currently filled with many rumors and some unrealistic expectations guided by foreign media.

Recently, the narrative surrounding the two Trump trades and China's shift has intertwined, making the exchange rate of the yuan the focal point of attention. It previously broke 7, and the offshore rate reached levels around 7.24. What is your institution's current view on Chinese assets, including the yuan, bonds, and stocks? Are you paying attention to opportunities in the Chinese market now?

Yang Tianxia:

From the perspective of macro capital flow and economic analysis, it is clear that the dollar should strengthen while the yuan should weaken, with tariffs acting as a catalyst. This is quite evident from a macro perspective, but corresponding positions are also in place, and any intervention by the central bank will lead to adjustments. Overall, foreign exchange trading is the most apparent aspect for me. If China's fiscal policy stimulates consumption, the stock market will rise significantly.

I believe the strategy for China is to go long on stocks while also going long on the dollar against the offshore yuan, and then trade around these two positions. This is basically the structure, and of course, in foreign exchange trading, you can continuously roll over your options, as you are looking at the forward exchange rate. The forward rate of the dollar against the offshore yuan is already very low, so this is a great buying point.

Zhu Chen:

Currently, investors in China feel that European and American funds may have been underweight in assets like Hong Kong stocks for the past two to three years. The reason for this underweight could be due to short-term issues or some long-term trends that are often discussed, such as aging. Are these short-term factors influencing their investment decisions, or do they believe that long-term factors, like the difficulty in actual transformation of real estate, have led them to not consider increasing their allocation to China or reconfiguring to increase their allocation to Hong Kong stocks and other domestic assets?

Yang Tianxia:

This should be considered the recoverability of capital rather than just the return on capital. Many people may no longer be looking at valuations, yields, or economic fundamentals. The key concern is whether the money placed here could suddenly be blocked by government measures from the U.S. or elsewhere. People may not be viewing assets like Hong Kong stocks through traditional value perspectives or economic analysis frameworks anymore.

What everyone is most worried about is whether they can get their money back if they invest, or if there is a reputational issue. If I make some money, will my investors recognize it?

Because even if you make money, they may not necessarily recognize it, as everyone knows there is a political factor involved. From the perspective of foreign investors, Russian assets have been very cheap since the early 2010s, with PE ratios around 5, which have always been very low. Many people invested in Russia, claiming there are many high-quality assets at very low valuations At that time, Russia had the concept of the internet, and many stocks of this kind existed. Suddenly, one day, there was a wave in 2014, and some companies disappeared. Then, in 2022, sanctions were suddenly imposed overnight, regardless of how you valued them, your holdings became zero. This kind of thing is still fresh in the memory of many investors, as it happened in recent years.

So they first need to say that they can understand China as a stable policy environment, and that their investments can be recovered. Once this is achieved, everyone can recognize that valuations are not that high, and there are definitely some good assets in China.

Global Asset Allocation and Investment Opportunities

Zhu Chen:

Besides Chinese and American assets, what other regions are you looking at, such as European stocks, Japanese stocks, India, and Saudi Arabia?

Yang Tianxia:

More alternative regions like Latin America, South Africa, and then Poland. Poland is a special case because all the money from Europe will flow into Poland due to its proximity to Russia, and many foreign investments are flowing there. South Africa is also a unique situation because after the South African elections, it returned to a pragmatic political environment, with very low valuations and a good capital cycle, as well as many precious metal industries. So these are two situations that are quite unique and influenced by geopolitical factors.

But Latin America also has low valuations and is in the backyard of the United States. Moving forward, on one hand, people will invest in the U.S., but there will also be outsourcing and nearshoring, which has already been clearly seen in Mexico since 2022 and 2023. Large-scale foreign investment is on the rise, and the trend is still there.

So if you go to Mexico to buy real estate, Mexico has airports and many types of beneficial assets, and those areas are being looked at more.

Gu Chengqi:

Because we just talked about expectations for China's fiscal policy, aside from these unresolvable geopolitical risks, I'm very curious from the perspective of foreign capital, what kind of policy would satisfy you as a stimulus?

Yang Tianxia:

This is hard to answer. After all, you have to put something out there, and then the market reaction follows, and everyone believes it. I think the most basic rational analysis framework is that if any policy clearly recognizes that the balance sheets of consumers and the overall household sector must be stabilized first, then you need to control liabilities, stabilize assets, and ensure cash flow and income stability.

I think if the policy clearly acknowledges these points, while we also care about the labor market and income growth, that might be enough. But right now, people may not have seen clearly whether there will be any explicit signals recognizing that the household sector's balance sheet is very critical, and that the consumer's balance sheet is very critical, and that confidence is not returning. Simply focusing on local governments and enterprises may not be that effective. From a simple perspective, policies leaning towards this type may be more important.

The Probability of Soaring U.S. Treasury Yields is Low, Gold Price Fluctuations Depend on Whether Trump "Follows the Rules"

Gu Chengqi:

Because after listening, I feel that you are very optimistic about the U.S. dollar as a significant trend. Now U.S. Treasury yields are continuously rising; what level do you think is close to the peak? On the other hand, Bitcoin is continuously rising, which may have different reasons, but the phenomenon everyone sees is that Bitcoin is rising while gold is falling. Will people see this as a trend among generational investors, leading to a shift from gold to Bitcoin? So I want to ask how you view these two assets? Yang Tianxia:

I don't think the probability of U.S. Treasury rates skyrocketing is particularly high, because first of all, there is no obvious inflation problem. Rising rates often indicate a strong economy, and regardless of who the Federal Reserve Chairman is, there will ultimately be intervention. It goes back to the unification of fiscal and monetary policy in 1942, so U.S. Treasuries have probably fallen too much.

I think the drop in gold is often a signal that they have actually canceled some of the inflation risk. Another point for gold could be hedging against geopolitical risks, which may also be decreasing, so I think the most likely disappointment in the Trump trade is still the bond yields, which may not rise too much, especially U.S. Treasury yields, which have the least likelihood of spiking.

In terms of the overall trend, even if gold drops back in the short term, will central banks outside the U.S. still be buying? The ultimate reason for gold's rise is that major non-U.S. central banks are buying gold. Everyone knows that reserves cannot be held in U.S. Treasuries, so the overall trend is likely still there. This is a matter of degree, related to the speed of their execution.

So gold will still have support; after all, it has risen so much. We have some models to calculate how much gold has been mined and how much money has been printed globally. Dividing these two gives you a line, and overall, the gold price should be correlated with this. Now, gold has returned to levels seen in 2011-12, and relatively speaking, the money we printed is not as much as imagined.

Two years ago, this indicator was very low, meaning there was a lot of room for gold to rise. Now, the market value of gold has increased significantly, and in fact, the money supply of G20 countries is not as large as imagined, so gold prices are instead in a fair range and may very well stagnate for the next year or two.

But it's hard to say. The key is to see if Trump follows the rules after taking office. If he needs traditional Republican collaborators to work with him, the first thing will be tax cuts, deregulation, and possibly negotiating with tariffs, which overall is quite positive.

If he takes office and seeks revenge on the Democrats, making them bear responsibility for (previous matters), then the market's reaction may not be good, so we still need to watch.

How to Become a Trader? You Need to "Be Good at Gaming"

Gu Chengqi:

We also know that you previously came from a trading background, and many people are very interested in the profession of a trader. Everyone wants to understand what life is like as a trader in a major financial institution and what the work state is like.

Additionally, many people, especially young people, will ask if I want to become a trader or follow a career path similar to yours, what advice do you have?

Yang Tianxia:

Personally, I'm not particularly fond of the life of a trader. I think it depends on how much you enjoy gaming. If you come from playing Dota, right? People our age, but for example, maybe it's Call of Duty. If you enjoy playing such games, I think being a trader is a relatively suitable career path. But at that time, I felt that there was too much information stimulation in that environment, leaving little space for longer-term thinking So at the beginning, I was doing this. I studied economics at Cambridge, and after graduating from Cambridge, investment banks came to recruit. At that time, I didn't think too much and just followed that channel, and I found that I could learn a lot.

But if you want to do some deep thinking work, you may need to take a few steps back to a position like an analyst, where you can spend a day looking at a few reports to think about problems without being influenced by market fluctuations.

I remember very clearly that there was a very key piece of data from the U.S., the non-farm payroll data, on a Friday. Every month, this is the most important data in your life until the next month. When this happens, the market has significant fluctuations, and then by the end of the day, it returns to its original position. After seeing this, I felt that this was not very suitable for me.

So I started to deliberately transition early on, trying to find a way to learn many aspects and engage in this so-called deep thinking. This was my choice, but ultimately it came from the fact that I probably didn't like playing these games since I was young, and I also didn't adapt to this.

For example, when we recruit traders now, we ask them what games they play, and I think that’s quite crucial.

Then stepping back, if you pursue this career path, one good thing is that basically everything you learn is actually appreciating. In many industries and jobs, the human capital you acquire is actually amortized; you start by teaching you a little something, and over time, as you work longer, it gets phased out.

But one great thing in the investment field is that you can continuously encounter new things, new investments. For example, we do a lot of quantitative analysis, macro analysis, and many fundamental models, and we can also access a lot of political data and models. You will find that knowledge is very interesting; as you learn more, it accumulates, and this actually appreciates. I think this is the most crucial point.

So I think this is what attracts me to continue in this industry. If you are just in it for making money, there are many fields, but in the long run, this part is relatively interesting.

Gu Chengqi:

Can you describe in more detail the relationship between games and traders that you just mentioned? Where do their similarities lie?

Yang Tianxia:

It’s about having a plan, and your reaction is very important when different things happen; it should be said that it’s intuition. When you play a game at a high level, you no longer think about which buttons to press. On one hand, there are specific patterns, and when different patterns emerge, having a good, intuitive, and quick reaction is quite crucial.

Because in trading, many things happen a lot of the time. For example, let’s say the Trump election, right? When you’re sitting there processing beforehand, you have a set of things: if A, B, C happens, what will I do?

Then when the results come out, you need to know, for example, that the RMB doesn’t react much, but clearly the dollar is rising, or the euro is rising. You need to have a lot of this intuition at that moment.

Because machines can no longer completely solve this for you, as they cannot understand it; it’s hard to get it completely right. Only when there are no major catalysts or significant events can machines perform better. But the value of a trader comes from having an intuitive reaction at critical moments, like during Trump’s time, the results in Florida, right? That day was crucial; the results from Florida clearly indicated that everything was leaning towards Trump. At that moment, there had to be an instinctive reaction to assess whether our positions had moved, as these were Trump trades that needed to be chased for gains.

I think it's more about the training from playing these instant games, how to find that intuitive sense, and how to set frameworks for oneself to react to different events. This is quite a key point.

Gu Chengqi:

For young people who want to pursue a career as traders or researchers in the future, what preparations do you think they need to make in school, aside from playing games?

Yang Tianxia:

What we can see now is that AI is both amazing and somewhat frightening. The so-called knowledge can indeed be replaced by AI, so we need to find a balance. Look at history, understand the big picture, and how the world operates. On the other hand, we need some quantitative skills, a basic understanding of how big data works, and then combine these two aspects. I believe the real value in the future will lie between these two.

Whether it's hiring at our company or serving clients, we often aim to find a balance between these two. Studying history, especially the history of financial markets, provides many analogies to understand how real economies and markets operate, and what roles exist. It's essential to understand what game you are playing.

Returning to the analogy of games, the most critical aspect of investing is to clarify what the game rules are. This is something AI may not be able to do for now, as the game rules tend to change slightly over time. Therefore, after understanding the game rules, one can then utilize quantitative AI tools, as humans cannot keep up.

I think if you can combine these two aspects, your value sustainability will be longer