China’s latest measures mark a positive step forward, especially as they have been rolled out together rather than as isolated actions, which typically have a more limited effect. I believe there is still scope for further easing in the coming months. With a significant fiscal policy push, we could see greater momentum ahead.
Time to collect! Who does not like locking in a win? Following the ever-reliable signals from our TM-IM system, I strategically took profit on several long positions to lock in gains after the sharp upward movements. The system’s indicators highlighted that the recent surge presented an opportune moment to reduce exposure, securing returns while managing risk.
On another note, I received the latest commentary from one of our partners in Hong Kong. I’m sure they have been busy fielding calls left and right about what is going on in the Chinese markets.
Here is a section.
The market reaction is not unexpected. China is so oversold that almost any gesture can result in a re-rating. As one friend has long pointed out, repeated signs that most everyone has capitulated and exited leaves the only path forward as up, with understandable volatility stemming from ongoing uncertainty.
While flows so far have been dominated by hedge funds, retail and family offices, institutional long-only capital is finally reawakening, and, for the first time in ages, sharpening pencils.
We see value in the market, and we believe there is enough growth in various companies to be found despite economic softening, but on the general market direction, we can only await further policy announcements. The expectation is for a RMB2 trillion fiscal stimulus in the form of special government bonds to boost consumption and ease the local government debt burden.
There was an NDRC press briefing on 7th October which offered no details and the market immediately corrected after that. Yesterday the Ministry of Finance announced that there will be a press briefing on Saturday 12th October. Expectations are that some fiscal stimulus will be announced on that day but we have to wait and see.
Execution will also depend on the local governments. The central government has made it very explicit that the directive on growth has to be followed. As usual in China, the results will be heavily driven by the willingness of regional governments to take risks and deliver.
For this reason it was especially promising to hear that the politburo meeting referenced a new “three exempts” measure, essentially exempting local officials who make mistakes or when focused on promoting growth. We hope this is an incentive to act, and the days of “lying flat” are behind us.
Ultimately, the market will be focused on macro data and signs of GDP growth and property sector recovery and that will be determinant of where the market goes from here.