Hey @ToStRo you see FT Lex today ? Confirmation of our collateral hypothesis. "Banks are wary. The private banking units of Citigroup and Credit Suisse have reportedly assigned a zero lending value to Fantasia’s bonds. They do not accept the bonds as collateral." Tip of iceberg
A Nomen is an Omen...remarkable how consistent the trend for silly named stocks to go wrong...would you invest in a property co called Fantasia ?? I remember shorting a Swiss tech stock called Miracle; was a miracle they ever listed in the first place...
Long China Sovereign and Short Property seems the ultimate Xi trade of long the CENTRE and short the LOCALS ONLY.
Xi will prevail...but for now I would prefer the long leg only. If we're right, and a little vol produces a huge reaction, then expect the mother of all short squeezes as the state begins to interfere with truth seeking activities...
Like US banks in 2008, China prop co.s could transfer their risks almost immediately until they couldn't. Remember Countrywide Credit? Today, I doubt they have much equity value. But having experienced the wild ride in 2008, I wouldn't be short here. Cue Sunac et al trade > 22..
Some might say property is to China what stocks are to the US and QE can trump all negatives. Hmm...never been one for Fantasia...Not obvious to me that QE has lifted stocks. Let me be more precise before you blow a fuse...
QE is a lazy centralist policy. It's only accentuated a prevailing trend. Having witnessed a perm shock and a loss of trillions of $ GDP, investors prefer zero risk investing. Again, riskless ventures have become priceless. A small coterie of tech co.s annoited this monicker
Everything else has zombified. UK's FTSE 100 trades same level as it did 21 years ago...Shanghai's A shares to be found at levels prevailing 15 years ago despite mirage of GDP growth. So no sign that QE has sent stock prices higher when they lack the elixir of riskless...
Modern China and Modern Macro are somewhat aligned. There was no Brevan before 2002 and in China bond curves have traded flat as bad things don't happen. Elsewhere, the state is held captive by capital. Big trading losses typically invert curves as investors demand policy action.
China's only crisis of the age was the CNY vol explosion in 2014. The trade of the century so far? The CNY carry trade. The QE short dollar / yuan domestic funding strategy. Borrow in a depreciating $s at zero cost and nefariously bring capital onshore for double digit returns
Beijing bureaucrats orchestrated the CNY's ascent with preposterously low price volatility. And so the trade exceeded a TRN $s. The naivety of the planners was seen when realising their error end 2013 they sought to introduce a coup de vol and the trade went BOOM !! CNY lost 20%
That was an external vol / leverage trade unwind. A domestic version has yet to happen. It would almost certainly transform the shape of the local yield curve. Countries with prevailing happy risk cultures sport flat curves, countries with loans that turn to tears tend to invert.
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