Chinese equity investors are an excitable lot, God bless ’em. And international investors were woefully (albeit understandably) under-exposed to local equities. That’s a combustible setup in the presence of stimulus.

On Monday, just ahead of the Golden Week break, the Shanghai Composite Index scored a superlative gain, where that means the benchmark rallied a delirious 8%. And no, that’s not a typo.

It was the best one-day gain since 2008, and it was even more impressive — or ridiculous, depending on how you want to look at it — when you consider it came on the heels of a 13% gain last week.

The superlatives are too many to catalogue, but Monday’s gain was the ninth in a row, and the price appreciation over that stretch is 23%.

To give you a sense of the mood on the mainland, consider this quote from a CIO in Beijing, who spoke on the record to Bloomberg: “On the surface, I’m keeping my cool. But deep down in my heart I’m celebrating.”

The locals were so dejected after almost four years of losses for Chinese equities, that they were emotionally overcome on Monday such that veterans of the country’s capital markets, such as they are, had to suppress their emotions and hold back tears of joy which flowed freely “deep down in their hearts.”

The pre-holiday rally was, of course, an extension of stimulus euphoria triggered last week when the PBoC and, two days later, the Politburo, whipped markets into a veritable frenzy with a raft of measures designed to “stick-save” the 2024 growth target.

The wild trading drove turnover into the stratosphere, both on the mainland and in Hong Kong. H-shares rose another 3% Monday after soaring more than 14% last week (a five-standard deviation move, if you’re keeping track at home). Turnover on the HKEX is off the charts. Literally. See the figure on the left, below.

“This surge signals a potential shift in market dynamics,” JPMorgan’s Tony SK Lee wrote, noting that the bid for melt-up protection in H-shares (i.e., deep OTM upside optionality) has created an anomalous upside skew inversion relative to implied vol, “indicating investors are aggressively positioning themselves for potential upward moves.”

The Party needs to be careful to avoid stoking a bubble. Mainland equities are notoriously sentiment-driven and, to reiterate, this is an emotional investor base from the retail level on up. They’ll buy (and sell) without thinking through it (indeed, without so much as thinking about it), and they’ll gorge on leverage.

In their coverage Monday, Reuters quoted a random “Darren,” who described himself as a 30-year-old office worker. By his own account, he “started buying stocks using borrowed money” in recent days. “There’s no other way to be rich other than redoubling bets on stocks,” he declared. “The market craze you see this time could be unprecedented.”

That’s what I mean when I say this is a notoriously (dangerously) excitable crowd. And I can scarcely imagine a statement more anathema to Xi Jinping’s philosophical leanings than this: “There’s no other way to be rich than betting on stocks.”

In the same linked article, Reuters dryly noted that the Party hasn’t even started to implement the fiscal measures tipped last week, and cautioned there’s “no guarantee” Xi will succeed in “fundamentally improving business conditions,” let alone reversing the property crash he facilitated or reviving what Samuel Shen and Summer Zhen euphemistically described as “anaemic” domestic demand. (It’s not “anemic,” it’s moribund. It’s not “resting,” it’s dead.)

Of course, part of the plan is to leverage the equity market (figuratively and literally) to revive consumption through the wealth effect. Recall that the PBoC’s offering CNY800 billion in liquidity support through two initiatives in order to encourage brokers, funds and insurance companies to buy stocks. So, this is a central bank-sanctioned stock rally, which helps explain why everyone’s so confident about jumping aboard.

That sounds rational — don’t fight the PBoC, so to speak — but it also sounds artificial. This isn’t real demand. Brokers and funds are buying because Pan Gongsheng’s providing the leverage. Retail investors are buying because they know the state wants them to buy. And under-positioned foreign investors are buying because they have no beta — no “capture” — to the market. Recall that “short Chinese equities” was the second-most crowded trade in the September edition of BofA’s global fund manager survey (see the figure on the left, below).

The same poll showed professional investors have never been so pessimistic about the outlook for the world’s second-largest economy.

So, some of what you’re seeing in H-shares and A-shares is probably an effort on the part of foreign money to get in. “This rally must be viewed in the context of a broader global trend,” JPMorgan’s Lee went on. “Many international investors remain underweight China, and the trend of EM ex-China indexing has gained traction [so] the recent outperformance in China feels like a pain trade, raising the question of whether investors should close their underweight positions or chase the rally.”

Hao Hong, the pseudo-famous China strategist with a massive Western social media following, could barely contain himself on Monday. “This is the best single-day performance for Chinese large-caps ever,” he effused. “It’s absolutely insane.”

The picture above is from Hao’s “X” timeline. It depicts, as he put it, “a guy with a broken leg walking into a broker office to open a trading account” because “no one wanna miss out.”

From my perspective, the problem is one of trust. I can handle the risk of policy failure — i.e., the risk that China, despite its best efforts, proves unable to revive the consumer given the depth and scope of the property crisis. What I can’t handle, though, is the Party’s deep-seated ideological aversion to capitalism.

To be clear: I harbor an ideological aversion to capitalism too. But it’s not the kind of ideological aversion that says the “free hand” is like the idle hand: The “devil’s workshop.” I think capitalism’s “evil” with scare quotes. Xi thinks it’s evil without scare quotes, which is to say his struggle (“Mein Kampf”) admits of no compromise. He’s loathe to acknowledge that greed is immeasurably more efficient as a sponsor of human advancement than state planning. As I’m fond of putting it, human progress since 1890 or so is everywhere and always brought to you by avarice. That’s a damning indictment of the species, but it’s a more or less accurate assessment.

If it’s “common prosperity” you want, the paradox is that it has to be built on a foundation of unfettered competitive rapacity, which can then be reined in and “guard-railed” later. The problem in America is that we steadfastly refuse to rein it in (or even to tax it, really), so we have an inequality crisis. Xi demonizes capitalism. Americans worship it. Surely there’s something in-between — a happy medium.

Trying to state-plan an economy the size of China’s with no help from the free hand simply won’t work. Xi has China locked in an economic suicide pact. And I don’t want anything to do with it as an investor. Sure, you can run up nice gains — as David Tepper apparently has — by trying to time these episodic, state-fueled bonanzas, but if you’re a “regular” investor, I don’t think it’s worth it for the risk and the stress. Xi’s not a believer in the free hand. Period. And if he doesn’t like what it’s doing, he’ll chop it off quicker than a Shari’ah Court adjudicating a petty theft case.

Anyway, clap for Xi on Monday. And be glad for China’s legions of dejected strivers. God knows they needed a reprieve. The above-mentioned Hao called Monday, “one of the happiest days” of his life. Allahu Akbar. Allahu Akbar! Allahu Akbar!!!!!!!!!