Timing a strategic (rather than tactical) re-entry into Chinese stocks continues to split ultra-bullish strategists and wounded investors wary of another regulatory grenade from Xi Jinping’s government.
(Bloomberg) — Timing a strategic (rather than tactical) re-entry into Chinese stocks continues to split ultra-bullish strategists and wounded investors wary of another regulatory grenade from Xi Jinping’s government.
While the buy China idea might be crowded, the trade itself definitely isn’t, as I wrote this week. Positioning among non-Asia funds remains light, with long-only investors still significantly underweight China. People aren’t really putting their money where their mouth is. Not yet, anyway.
Which brings us to China’s Lunar New Year holiday next week. Recent macro chatter has been all about better-than-expected economic data out of Beijing, and the prospect of a pick up in consumer spending.
Assuming that festivities don’t change the trajectory for Covid, China optimists may be closer to placing their bets soon after ushering in the Year of the Rabbit.
Here’s my roundup of the week’s key developments for China markets.
On the mend
Vice Premier Liu He struck an optimistic tone in Davos, telling the gathering China’s economy will rebound to its pre-Covid growth trend this year. December data for retail sales and industrial output was far better than forecast, showing resiliency even as the Covid Zero exit wave spread throughout the country.
- China Faces Bumpy Economic Recovery in Covid Zero Aftermath
- China Tells Davos That Growth Will Rebound, Covid Has Peaked
Demographic challenge
China’s population shrank in 2022 for the first time since the 1960s, due in no small part to the fewest births in more than 70 years. The trend is a threat to China’s economic growth, which has been predicated on a vast labor supply. India may have already surpassed its neighbor as the world’s most populous nation.
- China’s Population Starts Shrinking, First Drop Since 1960s
- India to Pass China as Most Populous Nation in Historic Shift
Chips war
Dutch and Japanese export controls to China may be finalized as soon as this month. The restrictions on the sale of semiconductor equipment are unlikely to be as tight as those planned by the Biden administration, but they will still see China further cut off from the tech and know-how needed to build the most advanced chips.
- US Poised for Dutch, Japanese Help on China Chip Crackdown
Evergrande’s options
China Evergrande Group discussed restructuring proposals with creditors, including two options for extending payment deadlines on unsecured offshore debt. Separately, Evergrande’s auditor PwC quit due to disagreements over the developer’s (still unpublished) 2021 financial statement.
- Evergrande Is Said to Propose Offshore Restructuring Options
- Evergrande Says PwC Resigns After 2021 Audit Disagreements
Alibaba activism
WallStreetBets idol Ryan Cohen took an activist stake in Alibaba Group Holding Ltd. and is pushing for more shareholder rewards. Cohen’s sway over the board will, however, be limited by the Chinese government’s golden shares. Alibaba co-founder Jack Ma landed in Hong Kong, an appearance the market took positively.
- Meme Stock Icon Cohen Targets Alibaba in Rare China Activism
- Jack Ma Lands in Hong Kong on Latest Stop of a Global Tour
Ride hailing
Didi Global Inc.’s ride-hailing app appeared in Chinese app stores, allowing it to bring in new users for the first time since Beijing punished the company with a ban in July 2021. There will soon be a new competitor in town — a similar state-launched app for public employees called “Strong Nation Transport.”
- Didi Wins Okay to Relaunch Apps as China Tech Crackdown Ebbs
- China Creates ‘Strong Nation’ App as Data Regime Tightens
Housing hiccups
China’s home prices fell for a 16th month in December, extending the longest downturn in history. The declines came after policy makers unveiled a sweeping plan to revive the market. They’ve done a lot more since, including a plan to channel cheap loans to developers via bad-debt managers like China Huarong Asset Management Co.
- China Home Prices Slump After Covid Outbreaks Stifle Rescue
- China Bad-Debt Firms Plan Property Aid of Up to $24 Billion
… and three things to watch for next week
- China’s onshore stocks, which are on the cusp of entering a bull market, won’t trade all week, while Hong Kong comes back Jan. 26. The offshore yuan and New York-listed Chinese stocks and ETFs will all still be pricing global sentiment around how China’s big holiday week is going. Datapoints to watch include travel spending, cinema ticket sales, Macau tourism numbers, intra-city mobility and seasonal home sales.
- China reopening trade recommendations include short CNH/JPY from Citigroup’s emerging-market team, while Pimco said Thailand’s baht and the Indonesian rupiah will be some of the biggest winners.
- Funds focused on emerging markets just attracted the largest weekly inflows since 2021, according to Citigroup analysis using EPFR Global data. Many are reallocating to Asia at the expense of Latin America, a trend that may continue should funds turn overweight on China.
Chart source: Citigroup
Note: This Week in China will resume Feb. 4 after the Lunar New Year break.
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