China Market Squeeze Defies Gravity
China is closed...
...but the continuously traded China futures is hitting another new recent high. Hard to find superlatives for this squeeze, but note just how far down the 50 and the 21 day moving averages are trading. You don't see this in indexes...
Source: Refinitiv
Most overbought ever
China futures (SFCc1) with RSI at 91. The most overbought levels ever.
Source: Refinitiv
China mania
Second largest weekly inflow ever to China equity funds.
Source: BofA
China - not so fast
BCA weighs in:
1. Absent the multi-decade housing and construction boom, China will be unable to generate the monster credit impulses that it did through 2000-20.
2. Hence, the recent melt-up in Chinese stocks and China plays may last a few more weeks but is unlikely to be a rerun of the 2015 episode either in magnitude or in duration.
Source: BCA
China housing
Basically forget credit impulses: "Through 2000-20, when China’s housing boom was in full swing, it was possible to channel the exponential credit curve into the housing and construction boom. But now, absent an alternative destination for the productive use of credit of the same magnitude, it will be difficult to generate those same monster credit impulses."
Source: BCA
That China recovery trade
"Outside of the broader shift in leadership between later and earlier cycle verticals, I would note there were still undercurrents of a China recovery trade permeating through the market with copper and select aluminum names outperforming other materials. I maintain that amplified by seasonality this is likely to be a more durable narrative than the bears that are inclined to fade the headlines would like. That said I would note that in the span of a week or so positioning has clearly moved up and is no longer as underowned as it had been just mid-Sept… "
Source: MS PB
China call mania
This is way beyond extreme...
Source: Dany Kirsch
Options in China
You are not early chasing those calls everybody is recommending...post the melt up.
Source: GS
Overshooting?
JPM's Matt See asking "Are investors still UW and can the POSITIONING PAIN TRADE continue in the short-term?"
1. Global active funds need to buy $450bn to neutralize their UWs in China
2. Local retail investors need to buy $1.7tr to get back to 2021/15 equity allocation levels
3. ETF flows have seen zero cumulative inflows between 22-24YTD… but it’s starting to inflect
Great chart showing things have overshot in the short term...
Source: JPM
China relative market cap
What is the upside? "...assuming China as % of MSCI ACWI market cap rises no more than 2018 high of 4.0% = 30% upside".
Source: BofA
More on China upside
Hartnett: "assuming MSCI China P/E moves from 11-12x to 15-16x (average peak following 3 prior China policy shocks) = 40% upside".
