🧵1/4 China's Equity and Currency:
Currency is likely on a meaningful but managed appreciation.
Equity is not similar to the 2015/2016 bubble/crash situation.

"Equity

Onshore A-share market has had a highly choppy streak of trading in the past two weeks with staggering volumes changing hands every trading day.  The combined market volume reached the unprecedented 3.5 trillion CNY or roughly 690 billion dollars and stayed at that high level of volume before the military parade on Sept 3.  The market is talking about “the moving of deposits”, that is, households are moving their cash deposits from banks and Wealth Management Products, WMPs, to equity on the back of bottom-low interest rates and the wealth creation effect of the equity market.

Part of the market fluctuation might have come from the chatter that the significant rise of the indices in the summer has been somewhat induced by the “National Team” for better optics before the military parade and these forces would wane down right after it, hence the profit-taking flows were particularly eager right before and after Sept 3.  All major indices retreated sharply on Sept 4 with the Startup Board shaving 5%+. But the nice rebound on Friday seemed to indicate this notion that “national team bidding up the market for good optics” was most likely just the market’s own speculation without any concrete evidence. The rebound on Friday entirely reversed the drop on the previous day; moreover, its intra-day price action was steady throughout the trading session without any major sharp spikes; it was a healthy rebound with the liquidity on sidelines buying the dip.

Market starts to be concerned about potential froth in valuation, partially from the PTSD of the speculative frenzy and its ugly aftermath in 2015.  Some observers made some points about the historical high of trading volume, the balance of margin loans (~ 2.2T CNY, roughly the same as 2015) etc. as causes of concern. These thoughts are certainly legitimate, but perhaps a bit too early.  For starters, the size of the market and the liquidity pool as well as the interest rate environment are entirely different from those of 2015.  Market valuation, even after the meaningful rise, is merely back to a level slightly above the historical average of A shares. Also, the super tight environment of external liquidity of recent years is likely to come to an end, or at the bare minimum, improve meaningfully on the margin.  Personally, I’d tend to think the very recent mini-frenzy of late Sept-Oct in 2024 serves as a fresh warning against emotional trading; it is way too recent to fade in the collective psyche of investors.  Suffice it to say -- bubbles are not produced by a cautious market.

FX

CNY is under meaningful appreciation pressure. The price action says it all – the spread between offshore USDCNH spot and onshore USDCNY has gone negative (around -30/-60 pips most of the time) and has stayed there in the past ~10 trading days.  To make it more significant, this happened on the back of continued South-Bound inflows under the Stock Connect into the Hong Kong market (which should have made USDCNH stand above onshore USDCNY, other things being equal), and the net South Bound flows registered around 110 billion HKD (~15 billion USD) in the past month. The North Bound data is no longer updated in a timely fashion, but it is fairly safe to assume it is below that under the South Bound, that is, net net, there have been visible buying flows on USDCNH.

The appreciation pressure is likely to intensify for a slew of reasons, and there is market chatter that some state-owned banks have been buying USD in both markets to slow down the rise of RMB. If this is the case, the currency issue might be one of the many topics to be discussed in the US-China trade talks and the stance of the PBOC will not show meaningful change despite weak NFPs in the US or a sharply lower YC of the treasuries, until concrete deliverables are secured in the trade talks.

The immediate path forward might be a slow strengthening streak or the RMB, with its pace just matching the forward premium of the FX swap points dictated by the interest rate differential, so that it is tricky for speculators on the currency to make an easy profit on the move.
" 2/4
Friend let me share the full private note above.

On the Chinese currency, our current internal tactical model is 25% hedged for CNH, thus also biased toward appreciation, as 50% hedged is our neutral baseline.

If PBOC guides the appreciation toward the market's expected forward rate, then due to higher interest in the US, it's tricky for currency speculators to make money. Chinese equity holders will get the currency appreciation if this happens.

China Ministry of Commerce: it will crack down on those who say you could buy cheap fake high quality brand name luxury goods that’s been popular on TikTok etc.

对以所谓“代工厂”为名虚假营销、侵权假冒等违法违规线索，我们将及时移交行政执法部门依法查处。

mp.weixin.qq.com/s/nebvTXAnNecM… I know those have been popular on social media

1 China wants to have a good trade deal with Europe, thus protecting mostly European lux brands makes sense.

2. China is also developing a lot of local lux brands. It didn’t help to have fake stuff for China either.

🧵I agree w. the poll and think that US & China are likely to reach a deal by year end.

By not yielding, China showed its leverage. US's original plan of everyone just shut up and pay is not feasible. Both sides now are feeling the pain. /1

https://x.com/liqian_ren/status/1910174403062645060

US has two main pains. One is financial market /2

https://x.com/NickTimiraos/status/1910422833643028649

Live Press Conference Link "Strengthen countercyclical adjustment of fiscal policy and promote high-quality economic development"

Min. of Finance Minister Lan and 3 heads of departments （General, Budget, Treasury 綜合司，預算司，國庫司) will do Q/A
live.baidu.com/m/media/pclive… Ideally the press conference set expectation and deliver expectation, with slightly positive side.

The Minister of Finance worked from bottom to the top so professional ability is high.

(最好的結果是不要太超預期。

政策太好和太壞對中國這種散戶居多的市場都沒有好處。市場預期之内，稍稍好，讓大家忘記發改委的表現，就夠了。）baike.baidu.com/item/%E8%93%9D…

I got asked several similar questions all the time. Might just answer it here.

Q: Does the Party care about the economy?

A: The Party cares about stability and staying in power. If economy helps it stay in power, then it’s important. 1/7 For example, this case of a 37 year old migrant worker randomly attacked 18 people in Shanghai and killed three.

(From social media, unverified )He was owed money and tried to get his wages.

When he was at the ends of his means he had sold his cellphone and killed randomly.

🧵The Communique, the press conference, the Decision, "the Trinity" 😀 （決定裏有12個探索值得一看）

Overall just released "Decision" follows similar points, no big and bold initiatives, but 12 "explores" that's positive and explained below.
1/
politics.people.com.cn/n1/2024/0721/c…
First Explore: Explore setting up personal bankruptcy system. (探索建立个人破产制度)

Probably a surprise to outsiders that China actually didn't have an easy personal bankruptcy system. So if one has a mortgage underwater, no easy way out. 2/

Govt ignoring economic advice 🧵

China's domestic think tanks are mostly defining the current high unemployment of youth (~18%) as structural (结构性失业）, showing charts the new labor supply mostly come from those w. higher education /1 New labor supply coming from education, public management, manufacturing, health and social work. (图3 中国新增劳动力结构变化情况（单位：%）

Those who love Wuxia writer Jim Yong and live close to Hangzhou, the library he donated to Jiaxing (close to Hangzhou) faces demolition.

If you are interested, might worth a weekend visit before torn down.(位于嘉兴的金庸图书馆，即将面临被推平、拆除。)

mp.weixin.qq.com/s/_pZNmZGjD4MX… Friend 六神 wrote that article trying to convince authorities whether there’s any possibility to reverse the demolition orders.

Local govt Changshu will start paying digital Yuan for all civil servants, a few other city government paying partial wage in digital currency. Digital Yuan will become more widespread domestically and likely other close countries but it has little to do with separate efforts to allow more Yuan adoption in trade settlement.

I was told in many Thailand or Vietnam one can currently pay directly in Yuan for many services.

🧵I am increasingly skeptical of the young people more for TW independence story that media feeds us, now that I am looking at the data myself.

In the most recent opinion survey, the clearest age trend lines are: The younger, the more for 3rd party (Grey). Taiwan's current third party gets consistently 20%, and younger people are more fed up with both main two parties.

The other clear age-preference line is OLDER Taiwanese liked DPP (Pro. Independence Party) more, not the usual media story.

Sec. Yellen's speech on China. For important speeches, always best to go the source on top of narratives.
Narratives usually pick the one that attracts the most attention.

When one day 90% of the headlines, one can't tell whether it's a US headline or Chinese headline, that will be the end of current phase of "you started it first" competition.😀

wsj.com/articles/janet…

🧵Several local headlines all share the same root problem: local govt. are are short of money.

Elderly in Huhan protesting when govt. decided to take the employee contribution portion of health savings account from individuals. /1 Before, avg. one got Y3131/yr, now Y996/yr, no wonder the elderly in Wuhan are on the street.

Many are saying this is like the Covid protests, I have different take. I am pessimistic the elderly will get what they want by protesting. /2
baijiahao.baidu.com/s?id=175726866…

Transportation dept. came out and said it is not beind the official ride sharing APP being sponsored by the Propaganda depart platform.

On this state competing with private business issue, I think using a line is appropriate: let the bullets fly a while first让子弹先飞一会儿 /1 First, if in most business areas, people believe private entrepreneurs should do better than a state company, which I personally believe as well, then the claim that govt. could take 90% market share is too much boasting at most.

Secondly,
/2

Pres. Xi gave New Year address, 13 minutes. His speeches use many classic Chinese references, hard for many whose education at most 20% classics.

Referenced Song Dynasty poet/politician Su Dongpo “犯其至难而图其至远”, difficult road for long goal.
mp.weixin.qq.com/s/19-xuHDP1WfD… The line came from Su Dongpo’s “Thinking of Governance 思治录”, an essay criticizing another politician Wang Anshi. Thanks Google/Baidu 😂

zh.m.wikisource.org/zh/思治論（嘉祐八年作）

Dec 17: 0 reported death.

Baidu used symptoms like fever and medicine searches to construct a real time Covid index(red) and health care index, both have peaked for Beijing.

Death lags by 1-2 wks so for this wave, it should peak in a week for Beijing. /1 Zhejiang's new Party Sec. visited Ali/BABA, essentially saying "Let's do it".

The new theme is improve entrepreneur confidence, particularly private non-state-owned sector. 😂 /2

baijiahao.baidu.com/s?id=175255606…

Dec. 15th: 0 reported death.

Separately local Pengpai News reported death of reporter (周志春) and Caixin reported ex-People Daily reporter (杨良化) both as Covid deaths.

Pengpai and Caixin both a bit less state in state media and interesting both cases are old reporters /1 People will study why Beijing this time seemed having more severe Covid than other cities.

I think there are two main ones.

1. Beijing has low old age vac. rate. There's no public provincial data, but from public infor. it's not too hard to deduce.
m.gmw.cn/baijia/2022-12…

Dec 13: 0 reported death. Will be interesting whether it's continued 0 reported death bc. local press is reporting 37yr old soccer player Wang Ruoji died with Covid.

（据人民体育微博13日援引媒体报道,前沈阳金德队球员王若吉因感染新冠引发基础性疾病恶化不幸于昨日去世,年仅37岁。 ) /1 I am getting a bit annoyed people go from current cases number misleading to calling for stop releasing the data.

Most of my Covid situation assessments, both US/ China, all public and generally has been good w. some mistakes, came my meticulous reading and analyzing China' data

Dec 12: 0 reported death.

On whether China's ICU bed doubled to 10/10k, from ~4.5-5/10k in 2015 credible (10% a year)

both doctor friend and friend who has experience building Hospitals said that for China most critical ICU bottleneck is Doctors/Nurses, not equipment. From /1 Some existing medical school admissions and graduates statistics shows annual rate of increase ~7%, which would be possible to get to 8ICU/10k people.

Whether real functional ICU is closer to 8/10 or 10/10k I don't know. /2

Dec 11, 0 reported death, daily vaccine shots ~1mil.

Significant "fever⬆️" search in Beijing, increased "pharmacy⬆️" searches, but flat "hospital↔️ " searches:

Meaning many people infected but mostly relying on self-care or medicine, instead of hospital. /1 Interesting that same searches for Guangzhou showed the increase of fever (light blue) was significantly less than Beijing.

It's possible that assessment of medical/pharmacy needs were a bit too optimistic based on Guangzhou data. /2

Dec 10th: 0 reported death. First time daily vaccine does >1mil.

Actual deaths that's commensurate of other countries' definition, my rule of thumb = 200* Singapore* factor 1.5/2

Willing to bet that # won't be nearly as close to 1mil or 2mil as many model suggests next 6m /1 I grew up in a Chinese herb shop.

Many Chinese believe in herb, particularly the kind that's boiled from scratch, even it's just placebo effect.

People may joke about govt. handing out them, but don't under estimate how much support govt got for handing out /1

Dec 9th: 0 reported death, continued ramping up of vaccine shots.

On actual deaths, I am a bit skeptical of many model's 1mil potential deaths during this Winter wave projection.

Here's why. /1 Baoding, Hebei is first city that got hit. So far, signs are generally pointing to peak wave. Beijing, 1.5hr away from Baoding, likely getting through the peak in 2 weeks.

It's understandable people question reported deaths. But for large scale events like hospital over-run, /3