In recent days, the Chinese yuan has experienced a significant devaluation in the offshore exchange market. On Thursday, it broke through the 7.0 threshold and then continued to break through 7.01. On Friday, it fell further, successively breaking through 7.02 and 7.03, and at its lowest point, it even broke through 7.04.

In addition to the substantial decline in exchange rates, in the US stock market, Chinese concept stocks have also experienced a significant drop, indicating that funds areJust in the past week alone, the Nasdaq index has plummeted by more than 5%. Meanwhile, both the Dow Jones Industrial Average and the S&P 500 have seen declines exceeding 4%, making it difficult to discern whether foreign capital is actively selling off Chinese concept stocks at this point.

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02, U.S. Stocks

The depreciation of the Chinese yuan began in mid-August, and the downturn in U.S. stocks also started around the same time. Significant devaluations of other currencies began at this juncture as well.

The reason for the synchronized timing is that it was at this point when people suddenly realized that the Federal Reserve is likely to implement substantial interest rate hikes. In other words, the recent devaluation of the yuan is not an isolated occurrence.

Interestingly, in March of this year, a renowned U.S. investment bank claimed that Chinese concept stocks were too risky and advised clients to sell. However, by early May, the same investment bank was telling everyone that Chinese concept stocks were very much worth buying, and the bank itself had completed most of its positioning.

At that time, it coincided with the last significant devaluation of the yuan exchange rate. These overseas investment banks took advantage of the yuan's devaluation, where the dollar had more purchasing power, and quietly bought Chinese assets on the sly.

Therefore, everyone must be vigilant that the recent devaluation of the exchange rate could be the result of foreign capital deliberately suppressing the yuan's exchange rate while also driving down the prices of Chinese concept stocks and A-shares. If people sell out of panic, it might just be a good opportunity for some institutional funds to buy on the dip.

03, U.S. Treasury Risks

Looking back at the A-share market, foreign capital has been continuously flowing out over the past three trading days, with a cumulative outflow of nearly 10 billion yuan. However, when we extend the timeline, we find that this year, Northbound capital has been in a net buying state for most months.

On the contrary, we should observe that the risks associated with U.S. dollar assets are growing larger. Although the U.S. dollar keeps appreciating, U.S. Treasury yields continue to rise, which implies that the prices of U.S. Treasuries are still falling, and the pace of central banks selling U.S. Treasuries has not yet stopped.In this scenario, the continuous selling of U.S. Treasury bonds held by the People's Bank of China is a very normal behavior.

In the past, due to our large trade surplus, we accumulated a substantial amount of foreign exchange, and part of the asset allocation was invested in U.S. Treasury bonds. However, over time, we gradually realized that the creditworthiness of U.S. Treasury bonds has been deteriorating.

As a result, our holdings of U.S. Treasury bonds have been reduced by at least $350 billion from their peak to the present, and just from the end of last year to the middle of this year, the amount of U.S. Treasury bonds sold exceeded $110 billion.

The outflow of 10 billion yuan in foreign capital is completely different in magnitude from our sale of $110 billion in U.S. Treasury bonds.

Not only have Chinese yuan assets not been sold off, but other countries that have also sold U.S. Treasury bonds are actually buying Chinese yuan assets.