Best performing region over the last month? China A-Shares

US equities are stuck between stretched valuations + fading AI hype vs. the lure of deeper Fed cuts. That tension has given Chinese stocks a lift.

Qi’s Risk Model shows the big switch: macro drivers to idiosyncratic drivers.

Why?

-             Market focus moving from who has the best AI model to who can deliver it cheapest

-             Alibaba’s chips can fill the gap for Nvidia’s H20

-             DeepSeek’s new model runs on soon-to-launch domestic chips

-             Add in “anti-involution” rhetoric + low investor positioning → risk premia tightening

Until late July, the CSI 300 was 100% macro-driven (see chart1). YTD to July 31 top drivers were:

-             Higher metals

-             Higher China 10y yield

-             Higher US inflation expectations

-             Stronger EM FX

-             Lower China/EM stress

-             Tighter US HY credit

The Qi Model can quantify this. BUT in August, idiosyncratic factors took over (see chart 2) — despite only modest macro data improvement.

Now Nasdaq has also been idiosyncratic-led all summer. If the debate keeps shifting to computation cost per unit response vs. the “best” AI, this rotation could persist into September (historically the weakest month).
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