Last Friday, President Donald Trump announced unexpectedly that the US will, starting from 1 September , impose a 10% tariff on USD 300 billion worth of Chinese goods that were free of tariff previously. Officials from the People’s Bank of China (PBOC) blamed the US for such unleash of new tariffs and unilateral trade protectionism. The PBOC allowed the weakening of yuan to go below CNY7/USD, a psychologically important level for the stability of the currency. This may signal a preparation of further yuan depreciation and may lead to a new currency war. The yuan has already depreciated more than 10% against USD since the kickoff of the trade war in March 2018. As of yesterday, the yuan has dropped to the lowest level at CNY 7.0586/USD in 11 years. In view of the expected downward pressure in the equity markets, we recommend to underweight stocks with high exposure to currency risk, especially exchange rate risk between CNY and USD, including Chinese property developers, Aviation companies and Paper Manufacturing companies. On the other hand, we recommend to overweight stocks and sectors with positive fundamentals at attractive valuation should the market continue to drop, including Pharmaceutical companies, Chinese Insurers and Property Management companies.