After a day in which US-listed Chinese shares surged 33 per cent and the Hang Seng Technology Index posted its biggest one-day gain ever, a veteran Asian investor in one of the world’s largest hedge funds called last Thursday for a turning point.
The scale of the march was welcome and impressive, he said, but his motivation – a A pledge from the head of the Chinese Communist Party To introduce a set of ‘market-favorable policies’, and the immediate endorsement of this from other high-ranking government agencies came with huge ramifications.
For the first time, in his view, the left and right hands of China’s policy makers and market management seemed to be working in unison and signaling an important change in direction. He may be right. But the question is whether that matters much if the global economy is decoupling.
Optimistic statement on Wednesday from Liu HeThe closest economic advisor to President Xi Jinping was encouraging. This hinted that after last year’s painful clashes between the state and the stock market, a compromise was made between Xi’s “common prosperity” rhetoric and the recognition that market confidence is both desirable and fragile.
Apparently, this facilitation came from Xi himself and included some acknowledgment that a prolonged flare-up around the world’s second-largest stock market may, in these troubled times, have political value.
Technology stocks, led by Alibaba, climbed the strongest on Liu’s list of market ointments, in part because the sector was the most painfully hit By China’s recent actions, and partly because the promise of an agreement between Beijing and Washington on regulating US-listed Chinese companies should be circulated to making valuations more generally.
Caught in the whirlpool was a JPMorgan Chase Report Last Monday it downgraded more than two dozen prominent Chinese Internet stocks, describing the basket as “unattractive, with no near-term valuation support.” The report mocked the fun over the rally a few days later. Another theory is that the report’s salience and negative tone helped prompt Beijing to announce ground sooner rather than later.
However, there are a number of factors standing in the way of the optimistic view of China’s move. JPMorgan’s note emerged from a notable rough correction for Chinese stocks – an extended sell-off that led to valuations well below their February 2021 peak. The Russian invasion of Ukraine, along with its attendant geopolitical turmoil, meant there was little visible brake in the downward spiral. China’s move, in this context, was not so much a shift in mindset as an emergency circuit breaker triggered when policymakers reached their pain threshold.
As traders pointed out, Thursday’s rally was driven by hedge funds and pressure on short sellers. Only long money – foreign and domestic – still has to make final bets. Adding to their frequency, references from Liu and the Financial Stability and Development Committee he chairs have been met with near silence from tech and other companies. The market gathering paints the joy of a person who has been told that his dismal medical condition can be easily cured; Corporate reaction is more of a “fool me once” glare.
Above that loom dynamics that Beijing cannot change. Although confidence-boosting spasms are rare in China, they are not unprecedented. They have similarities to the successful experiences that followed the global financial crisis and after 2014, when panic over domestic growth or US trade wars prevailed.
However, on previous occasions, the Chinese confidence booster has been launched into markets where globalization still feels fundamentally unstoppable, and decoupling has seemed a remote risk. Neither can be said with confidence now.
Even before the invasion of Ukraine heightened fears of a decoupling of globalization, technological nationalism, redrawing supply chains and other major trends were refining. Calculations about investing in Chinese stocks. The ambiguity surrounding Beijing’s position with Moscow has not receded. Shi’s statements on Friday In a phone call with US President Joe Biden that the international community “must work for peace and calm,” it was a superficial pacification but unlikely to alter the underlying anxiety about secession. Investors’ hesitation about China still has plenty of valid excuses.
The measures taken by Beijing last week are important to neutralize some of the more private concerns about domestic policies that have hit certain sectors of the stock market. But this makes the Chinese market a more direct proxy for investors’ views of the future of globalization.
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