PBoC’s ‘Whatever It Takes’ Moment?
The recent China stimulus was a long-awaited ‘bazooka’ that the struggling market had long waited for. Against a backdrop of stagnating economic growth and real estate overhang, Chinese policymakers opted for an aggressive move which is specifically targeting stock prices, and trying to reverse years of negative foreign investor sentiment and dis-engagement.
While many of the structural problems remain, and the geopolitical tensions don’t appear to be going away anytime soon, one has to respect the massive liquidity impulse against a severely under-weight market. While foreign funds and investors have fully embraced this move, local investors remain cautious and under-invested, which could provide fuel for a continued squeeze higher. The wording of some of the Politburo’s statements might also be hinting at a somewhat open-ended nature of the stimulus, reminiscent of ECB Draghi’s famous ‘whatever it takes’ comment at the depths of the Euro crisis.
Crypto should be a strong benefactor here, thanks to a global liquidity easing backdrop, and a still skeptical local audience that might prefer to express their bullish expressions via Bitcoin than on-shore assets. With US economic growth still robust, steady corporate earnings, and supportive central bankers on the ready, we believe that this liquidity-driven trade to have legs and certainly would not to stand in this way as we head the US elections and year-end.
An interesting and final anecdote would be that the HSI (Hang Seng) is now outperforming both the SPX and Nasdaq YTD. How quickly things turn! Good luck.