Steve Profile picture
20yrs Strategist/PM/Advisor. Investment Philosophy-/Methodology-agnostic. Personal ≠ Professional views. Not advice.

Feb 26, 2022, 7 tweets

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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