China - Market Strategy 05 (Jan 23 - Jun 24)

[winston]

Chinese Stock Indicator With 100% Success Rate Is Flashing Buy

by Ye Xie and Amy Li

The risk premium of Chinese stocks has reached a level that historically leads to spectacular returns.

Compared with bonds, Chinese stocks have rarely been so cheap. At about 8%, the earnings yields of the CSI benchmark is 5.7 percentage points above the 10-year yield.

Source: Bloomberg

https://finance.yahoo.com/news/chinese- ... 51904.html

[winston]

China Skeptics Are Gearing Up for a Sudden Rebound in Stocks

by Richard Henderson and Michael Msika

While the country’s slowing economy and policy uncertainties have prompted long-term global funds to retreat en masse, at least some investors see potential for a technical rebound at such cheap valuations.

Call options on a large US-listed Chinese stock ETF surged last week even as key equity benchmarks stumbled.

The MSCI China Index, down roughly 60% from its 2021 peak, trades at less than nine times its forward earnings estimates. That compares with a reading of 22 for MSCI India and 19 for the S&P 500.

Source: Bloomberg

https://finance.yahoo.com/news/china-sk ... 05052.html

[behappyalways]

Beijing Tells Some Investors Not To Sell As Chinese Stock Rout Resumes
https://twitter.com/ChinaBeigeBook/stat ... 1769781374



The total market capitalization (in USD) of stocks listed on the Tokyo Stock Exchange has surpassed that of the Shanghai Stock Exchange, making it the largest in Asia once again after 3 years.-Nikkei
The Nikkei 225 Index ETF in the Chinese market was heavily bought, leading to a temporary surge of over 10% and a premium of up to 20%. #China #Japan #Stockmarket
https://twitter.com/Sino_Market/status/ ... 1002927436

[behappyalways]

Chinese Stock Market Fear & Greed Index
https://twitter.com/Barchart/status/1747436218898387315

[behappyalways]

China’s Wealth Fund Vows to Play Role in Stabilizing Markets
https://twitter.com/ChinaBeigeBook/stat ... 7762517355


Chinese Stocks fell to a new 5-year low today of 3260.44 and have now declined more than 44% since the high on February 15, 2021.
https://twitter.com/Barchart/status/1747336060101652829


A lot of Wall Street pundits suggested that Chinese stocks could outperform in 2024. If this chart of the Shanghai Composite Index is any guide, it's not looking good.
https://twitter.com/JulianMI2/status/17 ... 6442211591


*CHINA'S BIGGEST BROKERAGE CURBS SHORT SALES AFTER STOCK ROUT
https://twitter.com/zerohedge/status/17 ... 3134641340

[winston]

‘Why is China down again?’ Bewildered Hong Kong-based funds ask BofA Securities to explain stock losses

The MSCI China Index tracking more than 700 stocks listed at home and abroad, has slid 9 per cent this month, the worst start to a year since 2016

Some veteran China investors reckon that China’s economic fundamentals are not as bad as stock prices suggest, BofA Securities’ Winnie Wu says

by Jiaxing Li

Source: SCMP

https://www.scmp.com/business/markets/a ... ock-losses

[winston]

Chinese stocks have erased more than $6 trillion since a 2021 peak—and the selloff keeps getting uglier

BYABHISHEK VISHNOI & CHARLOTTE YANG

The headwinds buffeting the market are well documented: China’s real estate sector remains a trouble spot, deflationary pressures are building and a long-running feud between Beijing and Washington refuses to go away, with the US election set to take place later this year.

In recent days, uncertainties about the trajectory of US interest rates and the threat of an imminent blowout of local stock derivatives have added to investor worries.

Asian fund managers have cut their allocation to China by 12 percentage points to a net 20% underweight, the lowest in more than a year, according to the latest Bank of America survey.

Source: Fortune

https://fortune.com/asia/2024/01/20/chi ... ng-uglier/

[winston]

G Sachs Rates H-shrs Marketweight, Expects CN 'National Team' to Net Buy RMB280B in Stock Mkt

Goldman Sachs wrote in its China Market Report that the past 3 years have undoubtedly been a challenging and frustrating period for investors and participants in the Chinese stock market, which has recorded a cumulative crash of 61%, a cumulative drop of 30% in total market capitalisation (A-share + H-share + ADR), and a cumulative decline of 56% in total P/E valuation.

China's equity market has significantly lagged the rest of the world since 2021 and valuations are now subdued, with fund positions at decade lows.

The broker's fundamental view is constructive, forecasting potential returns of 18% and 19% for the MSCI China and CSI300 indices respectively in 2024, assuming effective policies are adopted.

Real GDP growth is expected to be around 5%, EPS growth around 10%, and valuations to recover moderately. However, the broker also recognised that its central policy forecasts can vary widely given the complex macro challenges and the very active global political calendar, the outcome of which could have an impact on Chinese equities.

Related NewsCiti Estimates CN 2024 GDP Growth 4.6% YoY; Confidence Recovery May be Lengthy Process

The broker's recent investor dialogue suggested several possible catalysts that have the potential to reverse entrenched negative expectations and sentiment - including the potential for a comprehensive and robust easing programme in the Mainland, demand-side focused stimulus, boosting policies for the private economy, government support for the property and equity markets, and improved and predictable US-China relations.

Goldman maintained Overweight on A-shares and Marketweight on H-shares.

Goldman also noted that one of the key lessons to be learnt from 2023 is that it seems difficult for equities to fully decouple from the property market. The broker is forecasting an improvement in housing transactions and real estate fixed asset investment/new construction projects in the mainland through 2024, meaning the drag from the property market on equities may weaken this year.

In the stock market, direct government support may be the most effective way to boost sentiment and share prices in the short term, the broker believed.

China's "National Team" has become more proactive in the A-share market, in the form of direct purchases of selected domestic ETFs, increasing its holdings of certain index heavyweights (e.g. Central Huijin's buying of SOE banks), and encouraging buybacks by listed SOEs.

Goldman's Investor Wishlist for this year predicted net purchases by China's "National Team" at RMB280 billion under a base case scenario this year (compared to RMB97 billion in 2023), and RMB1.2 trillion under a bullish case.

Source; AAStocks Financial News

http://www.aastocks.com/en/stocks/news/ ... -news/AAFN

[winston]

Chinese Stocks Surge On Market Rescue Plan Report

by ED CARSON

Chinese policymakers are looking to tap some 2 trillion yuan ($278 billion), mostly via Chinese state-owned enterprises, to buy shares onshore via the Hong Kong exchange link, Bloomberg report, citing sources.

They also are planning to use some 300 billion yuan in local funds to invest in onshore shares.

Source: IBD

https://finance.yahoo.com/m/02e457c6-28 ... ge-on.html

[winston]

CHINA STRATEGY: NEWS ON MAJOR STABILISATION PACKAGE ON THE WAY

Media reported that China policymakers are considering a stock market stabilisation package which could amount to CNY2t (or USD278b) to stabilise stock market and restore investor confidence after the recent State Council meeting, which called for “forceful measures”.

It is also reported that at least CNY300b local funds would be invested in the onshore A-share market by the “national team”.

We believe the stabilisation package, if confirmed and implemented, could help boost market sentiment and liquidity, and could support a trading rebound in the near-term.

The media reported size of the stabilisation package (i.e. CNY2t) represents more than 3x of average daily trading value of the onshore A and B shares market, and is also larger than the A-share rescue plan back in 2015.

We are still of the view the consensus earnings estimates for MSCI China Index being optimistic at +13.2% year-on-year (YoY) in 2024 (vs +14% YoY in early January) and is likely to be vulnerable to downward revision, especially going into the results announcement season in March 2024.

Our base case forecasts 7-8% YoY earnings growth this year. We believe a sustainable re-rating would hinge on further coordinated policy support, a recovery in the real estate market, a smooth execution of debt restructuring and an improving corporate earnings outlook.

Real estate market transaction data will be a key point to monitor. Also, whether the central government would leverage up to support growth is another key focus.

Central government debt-to-GDP ratio was about around 21% in 2022, which is much lower when compared to other countries, and would have the capability to do so. As such, we stay Neutral in HK and China equities markets.

With China in transition and the US heading into a rate cut cycle, we advocate focusing on the following investment themes:
i) the proliferation of generative artificial intelligence (AI),
ii) identifying quality growth and market leaders amid a bumpy recovery, and
iii) yield plays to cushion market volatility.

Source: OCBC