Chinese equities are a screaming contrarian buy. Investor revulsion has become indiscriminate, a sign that the Shanghai and Shenzhen sharemarkets are close to touching bottom.
All the stars are aligned for a catch-up rally this year. Xi Jinping appears sufficiently worried about capital flight at home, and loss of confidence abroad, to start throwing the kitchen sink at the immediate problem.
Xi Jinping is throwing the kitchen sink at China’s problems.Credit: AP
“One trillion here, one trillion there. Since November, Chinese policymakers have been ramping up easing at an accelerating pace. Every drop is now several hundred billion to one trillion yuan ($140 billion),” said Wei Yao and Michelle Lam from Société Générale.
It is not the shock and awe bazooka of 2009 but it is starting to add up to serious fiscal, monetary, and regulatory stimulus, and is probably enough to head off a deflationary spiral for now. “Are we there yet? No. Are we getting close? Bit by bit,” they said.
My old colleague Tom Stevenson, now at Fidelity, wrote that Chinese equities look irresistible at a price to earnings ratio below 10, and I agree.
In rapid succession, the authorities have added an extra one trillion of fiscal stimulus for social housing and water projects, with another trillion flagged for March; the central bank (PBOC) is adding quasi-fiscal money through special loans, and last week announced another trillion of liquidity by cutting the reserve ratio for banks.
The regime is preparing a two trillion yuan fund to prop up the stock market directly, drawing on the offshore cash piles of state companies (SOEs). The heads of listed SOEs will henceforth be judged on share price performance. Short-selling by traders is to be restricted. The State Council on Monday pledged to “stabilise the market”. Journalists, bloggers, and academics have been told to talk up equities.
These are potent signals, and Chinese investors act on signals from the state, though you can also interpret this ferment as a warning sign. “Marshalling so much capital smacks of desperation, and makes me wonder if policymakers are worried [that] perhaps some big institutions are at risk of huge losses,” said Bill Bishop from Sinocism, a prominent Substack newsletter about China.
China’s economy looks more unstable than ever
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02.02.2024
Chinese equities are a screaming contrarian buy. Investor revulsion has become indiscriminate, a sign that the Shanghai and Shenzhen sharemarkets are close to touching bottom.
All the stars are aligned for a catch-up rally this year. Xi Jinping appears sufficiently worried about capital flight at home, and loss of confidence abroad, to start throwing the kitchen sink at the immediate problem.
Xi Jinping is throwing the kitchen sink at China’s problems.Credit: AP
“One trillion here, one trillion there. Since November, Chinese policymakers have been ramping........
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