It’s all about policy (part 2)
China markets rally strongly on more reopening sentiment; US jobs very strong… which is negative for stocks??
China markets these days are like the wild west.
At Citi’s China Investors Conference today, a CDC expert is rumoured to have said covid policy will change soon. He (apparently) mentioned that China’s new inhalable vaccine reduces 80% of infections, and that their vaccine is as effective as MRNA ones. Therefore, China will change covid policy soon and will reopen to the world by end of the year. Apparently.
I get the sense that this is a sign of China markers bottoming.
First, China will have to reopen eventually, and rumours like these typically have some basis. After the 20th National Congress, the CCP can and should gradually take more risks with covid to return to economic strength. Besides, if they were truly planning to “reunify” with Taiwan, economic and industrial progress is essential in waging war reunification.
Secondly, China markets have seen record outflows and investor sentiment is very bearish. Investors who wanted to sell would have already done so, leaving (un)happy holders still owning the index. Yes there can be further downside to squeeze out whoever is left, but I think risk-reward favours China right now.
To be fair I have been saying China is worth some allocation since July, and I have been wrong. Though given my 3 points, my conviction is the highest now that it has been.
Thirdly, even the sell-side analysts (who have always been either neutral or bullish on China) are taking a very cautious and bearish stance. They are all sitting on the sidelines, waiting for the government to give further clarity on reopening or increasing their focus on economic growth. Even with the recent rumours, they remain undeterred in their cautious stance.
If investors have spare cash, now could be a good time to start adding a little exposure to China. The risk here is that covid gets out of control and their new inhalable vaccine doesn’t work. The focus should be on the covid cases there, because that would be the government’s leading indicator anyway.
Oh and by the way job numbers were better than expected today. This would typically be bearish, but China was positive - and it’s all about the policy.