China equities: A look under the hood (thread)
Monetary easing and rising credit impulse are positive for equities. Valuations are low but technicals
mixed.
Key drags incl Common Prosperity/Internet regulations on $MCHI (not econ) and #Fed hikes.
#China
h/t @jpmorgan
1/
Past instances of monetary easing and broad credit growth were positive for equities and economy.
No longer as crystal clear for equities with Common Prosperity "guidance" on index heavy-weight
Internet/tech sector - 32% in just top 10 of $MCHI.
h/t @jpmorgan @iShares
2/
Regulatory tightening on Internet/tech continues, with the eventual scale and timeline is unknown.
Privately-owned enterprises (POE) in social
sectors, which includes Internet/tech, are of highest risk.
wsj.com/articles/meitu…
h/t @GoldmanSachs
3/
Tolerance for economic risks has increased to cater policy shifts or cleanups. The scale has surprising for mkts.
Property sector, directly/indirectly ~25% of GDP, is an example of policy surprise. Survival still the key theme there, incl top players.
4/
Internet/tech along with growth stocks have been the key driver #China #equities, both returns and
volatility.
Looking broader to #Fed rate impact, valuations on growth had narrowed vs value. And when this had
happened, it hadn't done well for $MCHI.
h/t @jpmorgan
5/
On technicals, #China #equities is oversold on long-term charts.
Short-selling has also reached new
record levels as a reflection of positioning.
However, there has yet been any signs of trend reversal.
h/t @jpmorgan $MCHI
6/
Conclusion: Positives/negatives on balance. Regulatory impact wildcard.
Macro
- #PBOC easing: Positive
- POE regulation: Negative
- #Fed: Negative
Valuations
- Overall: Supportive
- Growth vs Value: Negative
Technicals
- Positioning: Positive
- Trend: Negative but oversold
7/
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