China Is Back!

Well, the Chinese are back.

The PBoC injected 350 billion yuan on Thursday probably in an effort to make sure things got off to a good start after the five-day Lunar New Year holiday. That was the most injected via reverse repos in more than a year, although really, they’re just rolling what comes due this week. 

The SHCOMP logged its best day since August of 2016, rising more than 2%:

SHCOMP

The CSI 300 and the Shenzhen posted similar gains:

China

You can’t read much into this – they’re just catching up with Hong Kong, where shares were lower on Thursday.

And speaking of “catching up”, Bloomberg’s Garfield Reynolds reminds you that mainland Chinese equities haven’t exactly been world-beaters during the last leg of the rally.

“Over the past 1 1/2 years, record highs were set for all three major U.S. indexes, along with the benchmarks for Canada, Hong Kong, South Korea, India, the U.K., Germany and Switzerland [while] stocks in Japan and Taiwan hit the highest since the early 1990s, Australia’s benchmark index reached a decade-high, as did France’s,” he writes, before noting that “China was the only $1 trillion-plus national stock market missing out on the party — the Shanghai Composite only reached a two-year peak and its 6.6% advance in 2017 was in the bottom third of performances among 96 primary indexes tracked by Bloomberg.”

Of course China suffered an equity market meltdown in mid-2015 when the margin-fueled “miracle” that inspired all of the hilarious Chinese stock trader memes you’ve seen over the past few years ended in tears (and arrests), prompting the creation of a state-backed Frankenstein vehicle (the fabled “national team”) aimed at ensuring the bottom didn’t fall out completely. In any event, here’s a possibly useful chart:

Stocks

Who cares? Well maybe you should. Because after all, isn’t the entire bullish narrative for global equities centered around the notion of synchronized global growth?

Well China is the engine of global growth and trade and looking ahead, the ongoing effort to squeeze leverage from the country’s shadow banking complex even if that ends up shifting the economy down a gear to “slow and steady”, leaves the risks skewed to the downside.

 

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2 thoughts on “China Is Back!

  1. Ahhh. The Chinese economic “miracle”. Shift all lending from shadow channels. Open up the banking sector somewhat toward the outside world. Devalue. King Xi needs to engineer controlled defaults to soften the debt hangover from 2017.

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