Global markets are navigating a complex landscape as US Treasury yields experience heightened volatility, with significant implications for asset valuations across the board. The US equity market continues to trade near record highs, with the three major indices hovering around historical peaks despite recent pullbacks, reflecting sustained investor confidence and robust corporate performance.

The technology sector is showing signs of divergence, with leading tech companies displaying varied stock price movements, though the overall sector has yet to show definitive signs of a bubble burst. Market attention has increasingly focused on two critical developments: the US government's debt formally surpassing $40 trillion, which has intensified concerns about accelerated de-dollarization, and the subsequent surge in gold prices breaking through the $4,600 per ounce threshold.

The precious metal's rally validates earlier analysis suggesting that the long-term upward trajectory for gold remains intact. When international gold prices previously dipped below $4,000 to $3,900 per ounce, the argument was made that prices below $4,000 represented a golden opportunity, a perspective that has now been validated by market movements. The growing US debt burden strengthens the motivation for central banks and major institutions to reduce Treasury holdings and increase gold reserves, contributing to dollar weakness.

The Chinese yuan has strengthened against the dollar, with the central parity rate approaching 6.8, enhancing the appeal of RMB-denominated assets and attracting foreign capital inflows. While the US government's debt exceeding $40 trillion does not signal imminent default, it does put upward pressure on Treasury yields, creating the second major market concern. The 10-year and 30-year Treasury yields have risen sharply, triggering adjustments in equity markets, as Treasury yields serve as the anchor for global asset pricing.

Higher Treasury yields typically work against global capital market performance, challenging the traditional textbook assumption of US 10-year Treasury yields representing a risk-free rate. With yields now exceeding 4.5%, they clearly incorporate significant risk premiums. This contrasts sharply with China's 10-year government bond yield, which remains around 1.6%, highlighting the substantial divergence in risk-free rate assumptions across major economies.

The Federal Reserve finds itself in a policy dilemma, with neither rate hikes nor cuts appearing viable in the current environment. The September Federal Open Market Committee meeting is likely to maintain the status quo, keeping rates at elevated levels. The Middle East conflict, ongoing for over six months, remains unresolved, with the US and Iran negotiations at an impasse, keeping oil prices elevated and complicating the inflation picture.

US inflation has persisted for years, with consumer prices substantially higher than a decade ago, creating significant public discontent. The cumulative effect of price increases has been dramatic, with CPI peaking at 9% and currently hovering around 3%, translating into multiple-fold increases in living costs. The Fed must weigh this inflation factor carefully, as it cannot risk rate cuts that might exacerbate price pressures.

Conversely, rate hikes risk puncturing the US equity market's technology bubble, particularly concerning given that American households allocate over 50% of their assets to stocks and funds. A significant market downturn would create substantial political pressure, especially with midterm elections approaching in November. Consequently, the Fed is highly likely to maintain its current policy stance through the election period.

Turning to Asian markets, Hong Kong equities continue their pattern of repeated oscillations, with the Hang Seng Tech Index experiencing both significant rebounds and sharp declines. A major internet conglomerate's substantial HKD 80 billion placement plan triggered notable stock price declines, dragging the tech index lower. The Hong Kong market is expected to maintain its range-bound trading pattern, with technology and dividend stocks emerging as primary focus areas for capital allocation.

Hong Kong's valuation advantage persists, with the AH premium index remaining in the 120-130 range, indicating that comparable stocks trade at discounts compared to their A-share counterparts. Both A-shares and Hong Kong stocks are expected to continue their gradual bull market trajectory, with long-term opportunities remaining attractive. However, unlike the first half's tech-led rally, the second half should see increased sector rotation, with technology stocks experiencing repeated volatility while dividend stocks with solid earnings support and low valuations attract investor attention.

The investment approach emphasizes adapting value investing principles to China's market characteristics. Given that A-shares exhibit greater volatility and more pronounced reactions to negative news compared to US markets, position management becomes crucial. Investors should maintain higher positions at market lows, progressively reducing exposure as markets rise, and potentially exiting completely at elevated levels.

Policy interpretation is equally important, with sectors receiving strong government support warranting strategic allocation. Historical examples include new energy in 2019 and semiconductor chips in 2025, both representing policy-backed directions that have yielded substantial returns. Conversely, sectors facing policy restrictions should be avoided to prevent significant downside risks.

This China-specific value investing approach recognizes the fundamental differences between markets. The US market's maturity and global capital inflows often result in outperformance with fewer major corrections, while China's market remains emerging with retail investor dominance. Despite having only 20% of US market capitalization, A-share trading volumes sometimes exceed US volumes due to frequent retail trading, creating opportunities for quantitative strategies to generate alpha.

However, quantitative strategies should not be overvalued, as some have underperformed. The high-frequency trading prevalent among retail investors often leads to losses, emphasizing the importance of fundamental research and medium-to-long-term investment horizons. During current market oscillations, maintaining moderate positions rather than being fully invested or completely out of the market appears optimal, as chasing momentum and frequent trading often represent the root causes of investor losses.

The comprehensive framework for China-specific value investing integrates A-share market realities with traditional value principles, offering a replicable approach for achieving superior investment returns. This methodology, developed through extensive market observation and analysis, continues to gain recognition among investors seeking sustainable long-term wealth creation in China's dynamic equity markets.