Last Friday, the U.S. dollar index took a dive, dropping 0.64% after a sharp 1.22% fall earlier in the week. The U.S. stock market with all three major indexes declining: the Dow Jones fell 0.32%, the Nasdaq 0.5%, and the S&P 500 0.29%. In contrast, Chinese stocks listed in the U.S. skyrocketed. The China Stock Index surged by 4.25% in one night, reclaiming all its moving averages. Over the past eight trading days, it has gained 11.8%, signaling a strong rebound in Chinese assets.
2. China’s AI Models Spark Market Panic
Over the weekend, the Chinese AI company Deep Seek, a subsidiary of the quant fund giant High-Flyer Quant (幻方量化), caused a stir in Silicon Valley. The release of its open-source AI model, R1, just a month after unveiling its V3 model, sent shockwaves through the U.S. AI and stock markets. Independent tests in the U.S. suggest that R1 even surpasses OpenAI’s latest model, o1, raising concerns about China’s rapid progress in AI development.
According to global AI model rankings, Deep Seek’s R1 ranks alongside OpenAI’s o1 as the best in the style-control category, with R1 slightly outperforming in specific benchmarks. Meta’s Chief AI Scientist stated that R1’s debut marks a turning point, showcasing how Chinese companies are not only catching up but surpassing their U.S. counterparts. Open-source models, like R1, are now proving more efficient than proprietary models.
What’s even more striking is the cost efficiency of R1. Deep Seek revealed that training R1 cost only one-thirtieth of what OpenAI’s latest model required—an astounding 98% reduction in expenses. This raises critical questions about the future of high-cost AI infrastructure. For example, NVIDIA, the U.S. leader in AI computing, might face significant setbacks if lower-cost alternatives dominate the industry. Similarly, the U.S.’s $500 billion “Stargate Project” for building AI infrastructure could lose relevance.
The unveiling of R1 caused ripple effects worldwide. SoftBank, a key player in the Stargate Project, saw its stock plummet nearly 6%, its largest single-day drop since November 1. U.S. stocks also took a hit—NVIDIA’s share price fell over 5% in after-hours trading, and Broadcom’s dropped more than 4%. Futures for the Nasdaq index fell over 1.2%, and even Chinese A-shares related to AI dipped after initial gains.
The current shifts might highlight a challenge to US: China has discovered a breakthrough in the AI race, challenging the dominance of U.S. companies. While this may create turbulence in global markets, it’s a long-term positive for Chinese assets. As approach the Lunar New Year, market sentiment remains cautious, but analysts predict a post-holiday rally fueled by both domestic and international investments.
The UAE has emerged as a significant player in shaping U.S. foreign policy, leveraging its lobbying efforts and influence in the Middle East.
A Key Beneficiary of Lobbying in the Middle East
In recent years, the UAE has expanded its influence across the Middle East while playing an active role in U.S. foreign policy decisions. Despite pledging to exit the ongoing conflict in Yemen in 2020, the UAE continues to maintain significant military influence in the region. Alongside other Gulf nations, the UAE normalized relations with Israel through the Abraham Accords, marking a milestone in Middle Eastern diplomacy. Additionally, the UAE remains a key recipient of U.S. military support, purchasing billions of dollars in weapons annually. Culturally, the nation also hosted the 2020 Dubai Expo, a global event that showcased its growing global presence.
Between 2020 and 2021, 25 organizations registered under the Foreign Agents Registration Act (FARA) to represent the UAE’s interests in the U.S. These groups reported over 10,700 interactions with U.S. policymakers and received $64 million for their services.
A well-organized lobbying team based in the U.S. has been instrumental in shaping U.S. policy toward the Middle East. In November 2022, The Washington Post revealed a classified intelligence report detailing the UAE’s extensive efforts—both legal and illegal—to influence U.S. politics in favor of its interests. The report, compiled by the National Intelligence Council, flagged these activities as a national security concern.
Although the full details of the report remain classified, the UAE’s influence operations have been well-documented. While the UAE has long been a U.S. partner on key foreign policy issues, it has employed a variety of strategies—both ethical and otherwise—to expand its sway in Washington. A notable case involved George Nader, a Lebanese-American businessman who admitted to funneling millions of dollars into U.S. elections on behalf of the UAE.
UAE has hired former U.S. military officials as contractors, including individuals who held high-ranking positions such as generals and admirals. Notably, Jims (or James) Mattis, who later became the U.S. Secretary of Defense, advised the UAE military before taking on the role. These individuals were awarded lucrative contracts, raising concerns about potential conflicts of interest—especially when they returned to positions within the U.S. government.
In addition, UAE has spent billions of dollars purchasing U.S. military equipment, making it the third-largest recipient of U.S. weapons in the past five years, behind Afghanistan and Saudi Arabia. However, UAE forces operating in Yemen have faced serious accusations of war crimes, including civilian casualties and torture. Even after withdrawing troops from Yemen in 2020, the UAE has continued to support non-state armed groups through training, logistical aid, and financial backing.
The UAE’s involvement in U.S. political and military affairs has become a recognized national security concern. While military cooperation remains a cornerstone of U.S.-UAE relations, the 2020 Abraham Accords further enhanced the UAE’s diplomatic reach. These agreements normalized relations between Israel, the UAE, Bahrain, Morocco, and Sudan. While presented as efforts to promote peace in the Middle East, the accords have been criticized for increasing the militarization of U.S. foreign policy in the region rather than reducing it.
So…Where Does UAE Lobbying Money Go?
The UAE has invested heavily in lobbying efforts, with companies registered under the Foreign Agents Registration Act (FARA) reporting a total income of nearly $64.5 million for their work on behalf of UAE clients. While more than 20 firms were involved, just five received the majority of the funds. The top recipients were:
Akin Gump: $13.5 million
Brunswick Group: $12.2 million
The Camstoll Group: $10.5 million
Teneo Strategy: $7.2 million
The Harbour Group: $6.6 million
Akin Gump, the top earner, is also one of the biggest contributors to U.S. political campaigns. The firm reported donating nearly $1.1 million—about two-thirds of the $1.65 million total donated by all UAE lobbying firms in 2020 and 2021.
It’s important to note these donations are entirely legal, as no foreign funds were used, complying with Federal Election Commission rules that ban contributions from foreign nationals.
The largest recipient was Terry McAuliffe (D-Va.), who received a $200,000 donation from Terakeet on August 31, 2021. Other prominent Democratic politicians linked to UAE lobbying efforts include Senate Majority Leader Chuck Schumer (D-NY) and House Majority Leader Steny Hoyer (D-MD).
While most of the contributions favored Democratic candidates, the lobbying activity itself was bipartisan. Over 450 political campaigns from both parties received contributions from firms working for UAE clients.
In many cases, donations were made to lawmakers directly involved in meetings with UAE representatives. For instance, Akin Gump reported contributing $528,461 to the campaigns of 104 members of Congress they had engaged on behalf of UAE clients. One notable example involved Senator Todd Young (R-IN), who met with Akin Gump on April 15, 2021. Just a week later, the firm donated $5,000 to his campaign.
Despite extensive lobbying efforts by UAE representatives targeting nearly every Congressional office, their main focus has been on key committees. Specifically, lobbyists working for the UAE contacted staff from the Senate Foreign Relations Committee and the House Foreign Affairs Committee more than 200 times.
One of the most frequently contacted individuals was Lee Zeldin (R-NY), a member of the House Foreign Affairs Committee and co-chair of the House Israel Caucus. Zeldin is a vocal supporter of the Abraham Accords, which established peace between the UAE and Israel. Senior members of political parties and leaders of influential committees have also been primary targets of UAE lobbyists.
The UAE’s lobbying efforts extended beyond Congress to include significant outreach to the media. Reports show that UAE representatives reached out to over 500 media outlets, focusing on major publications such as The New York Times (95 contacts), Forbes (61 contacts), and The Wall Street Journal (43 contacts).
Think tanks were another target, with UAE lobbyists contacting them at least 90 times. Notably, the think tanks contacted most frequently—such as the Middle East Institute, the Atlantic Council, and the Center for Strategic and International Studies—have received millions of dollars in donations from the UAE.
With the Lunar New Year holiday, China’s A-shares market will only see trading today.
Besides, the spotlight is on the U.S. Federal Reserve, which will hold its first policy meeting of the year this week. Early Thursday (Beijing time), the Fed will announce its interest rate decision. Markets widely expect a pause in rate cuts for now.
In addition to the Fed, several other central banks, including the European Central Bank, Sweden’s Riksbank, the Bank of Canada, the Central Bank of Brazil, and the South African Reserve Bank, will also reveal their rate decisions in the coming days.
On top of that, U.S. earnings season is heating up. Major tech giants like Apple and Tesla are set to release their quarterly reports this week, drawing significant market attention.
A-shares: The Only Trading Day This Week
Due to the Lunar New Year holiday, today marks the only trading day for A-shares this week. Historically, the market tends to be quiet before the holiday as some investors adopt a cautious approach. However, after the holiday, the market often rebounds as these funds return.
According to Wind data, over the past decade (2015–2024), A-shares have shown a high probability of rising around the Lunar New Year:
5 trading days before the holiday: The market gained in 7 out of 10 years, with the largest increase of 3.92% in 2021.
5 trading days after the holiday: The Shanghai Composite Index rose in 70% of those years, with the biggest jump of 4.85% in 2024.
10 trading days after the holiday: The index continued to rise 70% of the time, with the highest increase of 7.10% in 2019.
Market Outlook and Opportunities
A report by Ping An Securities suggests that, with supportive domestic policies and easing external concerns, the market is expected to maintain an upward trend, with more structural opportunities emerging. Key areas to watch include:
Growth sectors such as advanced manufacturing and industries driven by new productivity.
High-quality companies benefiting from policies to expand domestic demand.
State-owned enterprise (SOE) reforms and opportunities in mergers and acquisitions.
Dividend strategies for long-term value.
Key Events to Watch
As the Lunar New Year holiday approaches, the following events could influence the market in the coming weeks:
China’s January Purchasing Managers’ Index (PMI) data.
Travel and consumer spending during the holiday.
The U.S. Federal Reserve’s interest rate meeting in January.
Updates on U.S. policies under Trump’s administration.
Spring Rally in Sight
A report by Haitong Securities notes that the “spring rally” is likely to unfold gradually. With policies taking effect throughout the year, the market could enter a new phase driven by fundamentals. Structurally, sectors like technology and manufacturing appear promising:
Technology: Supported by favorable policies, technological advancements, and an upturn in the industry cycle.
Mid-to-high-end manufacturing: Strong domestic supply and stable demand from both domestic and international markets suggest continued growth.
Meanwhile, consumer, pharmaceutical, and real estate sectors may experience shifts in expectations:
Real estate fundamentals and property prices are expected to stabilize, thanks to stronger fiscal support.
As household balance sheets improve and fiscal policies provide a boost, the consumer and pharmaceutical sectors could see upward momentum this year.
By monitoring these trends, investors can position themselves for opportunities during and after the holiday season.
