- Last week’s epic rally started around the nadir seen in first COVID outbreak in Feb, 2020. Since then, the US welded its fiscal/monetary prowess, while China sticking to COVID-0. Chinese market is back to square one. The US will follow.
- Both US and Chinese growth assets fell victim to a growth slump. Vietnam, the “Next China”, is not spared.
- Hong Kong short covering. But soaring HIBOR augurs for volatility surge in the coming months originated from the US market.
- Hot money outflow is at its 2nd worst in history. But these are speculative weak hands. What is left is the strong hands with holding power.
- Foreign brokers in HK cutting stock positions, while the mainland counterparts holding still. HK ETF attracts some of the largest inflows in history.
- While the Hang Seng can see further downside, this is a time when excessive pessimism doesn’t help anyone and starts to disagree with our contrarian-self.
- Confidence of various market participants is neutral to contrarianly positive, against a backdrop of better monetary environment.
- As the 20th Congress proceeds and uncertainties subside, Chinese market will likely consolidate and even stumbling higher.
- The US remains a significant overhang, and will disrupt Chinese markets.
- Chinese PPI, Chinese 10-year yield and US NFIB hiring data suggest US inflation has peaked. These are obscure indicators/relationships. But slowing inflation augurs for a US recession – it is not a cause for rejoice.
- The hedging relationship between stocks and bonds still works in China – unlike in the US. As such, China is still a normal market where prices can be more informative.
- Hong Kong is deeply oversold. Despite US recession risks, there is a trade here.