This weekly newsletter pulls together summaries of the top ten most-read Insights across Macro and Cross Asset Strategy on Smartkarma.
Receive this weekly newsletter keeping 45k+ investors in the loop
1. HK/CHINA: Market Pullback and Investors’ Cognitive Dissonance
- The investment community’s response to the historic rallies in HK and China markets over the last couple of weeks unsurprisingly continues to be pessimistic.
- China’s objective of changing market sentiment is beginning to bear fruit as mainland investors open stock accounts at a record pace. Household wealth has increased by 20T yuan last month.
- Technical market indicators point to continued high volatility during this leg of the secular bull market.
2. Stay Calm and Don’t Panic! Overbought Conditions Meet an Overhyped Meeting.
- A correction was natural after the fast, strong move up
- Any detailed fiscal stimulus plan will come from the State Council or the MoF
- Capital market reforms moving in the right direction with continued focus on consumption.
3. HK/China: THE BIG SHORT (SQUEEZE)
- Although the tech sector in Hong Kong has surged over the last couple of weeks there appears to be minimal short covering in US-listed China tech names.
- The performance of the “Magnificent 5” China tech names has led the rally as we outlined in Hong Kong: The Glass Is Half Full, Time to BUY Beta .
- The combination of of large outstanding short positions and a significant underweight of HK/China in international funds will lead to further upside in the tech sector.
4. Positioning Watch: Hedge Funds Caught in the China Storm, While Retail Investors Keep Piling In
- Hello everyone, and welcome back to our weekly positioning watch.
- What a week it has been in global macro once again, with Chinese equities collapsing earlier this week after the Chinese stimulus frenzy fizzled out.
- However, we are now starting to hear that Chinese authorities are taking matters seriously, planning a new round of stimulus on the 12th of October.
5. Steno Signals #120 – Liquidity and rate cuts are incoming in an already OK economy
- Just a few hours after the release of a much stronger-than-expected jobs report, Goolsbee of the FOMC highlighted the risk of undershooting inflation in the US.
- While Goolsbee is a dovish, soft-leaning member of the committee, it goes to show that you don’t turn around a supertanker like the Fed just because the NFP printed a bit better than expected.
- The Fed has set a direction, and it will take a lot to convince them not to continue cutting interest rates back toward neutral, around 3%.
6. Ministry of Finance Press Conference – First Take
- Heavyweights attended as per previous conferences. Finance Minister (FM) Lan Foan and his three deputies
- Economists’ and market expectations damped down to RMB 1.5 – 2 Trillion in stimulus.
- Some major positive points we believe, but will be a disappointment to some
7. China: Lessons from the 1997-98 Asian Crisis
- Overall, the warning from slow real credit growth on reduced credit supply and demand is the main lesson from the Asia crisis 1997-98.
- China High FX reserves; low borrowing overseas and dominance of domestic investors in Yuan markets argues against a currency crisis.
- Asia widespread banking crisis are also unlikely to repeat in China, though we see growing stress among rural banks that in the worst case could be a rural banking crisis.
8. China Economics: Is Beijing Finally Abandoning Policy Inaction?
- Beijing’s latest policy announcements show that it is no longer content with a managed slowdown. They are now committed to more energetic policy support for the economy.
- Given the slowdown’s entrenched roots, partly due to Beijing’s prior reluctance, we do not think that the current package alone will turn things around.
- But with Beijing taking the cyclical slump more seriously, further support measures are likely, which, cumulatively, may be sufficient to stabilize short-term economic conditions.
9. Examining the Bear Case for China
- Change in strategy by the Chinese authorities mean this is more than a trade
- Sentiment, valuations and positioning are still supportive despite the rally
- Overbought conditions in the very short-term and the technical picture is mixed
10. Walker’s Weekly: Dr. Jim’s Summary of Key Global Macro Developments – 11 Oct 2024
- China’s economic policy remains focused on investment, with low expectations for a significant stimulus from the Ministry of Finance.
- International reserves are generally increasing across Asia, supporting currency appreciation, except for Indonesia.
- Japan’s recent data shows rising cash earnings but declining real wages and household spending, highlighting concerns in the real economy.
