Analysis of Chinese assets

China's National Day holiday is about to end, and Chinese assets have experienced an unprecedented surge. In the week of National Day, the three major US stock indexes did not rise or fall, while the Hang Seng Index soared 10% in a single week, ranking first in the world. As the National Day holiday ends, China's stock market will open for trading. How much more can Chinese assets rise?

We must first understand what the logic behind this round of A-share surge is? On the surface, this round of stock market surge is indeed due to the massive release of money. Many experts say that it is due to China's monetary policy and the country's support for the stock market, but we must learn to be simple in investing and understand the underlying logic. Why did China release money at this point and why did it not release money before?

On Friday, the United States launched two off-market moves. One was that Buffett announced the second issuance of yen bonds this year, which triggered market speculation that he might be seeking to increase investment in Japan, driving up the stock prices of Japan's five major trading companies; the other was that Friday's non-farm payroll data was again faked beyond expectations, and the market began to price in a 25 basis point interest rate cut in November, which eventually triggered a rebound in US stocks on Friday.

The purpose of these two off-market moves is to snipe capital flows to Chinese assets, but it seems that they are not very successful at present. At present, the stock markets of the United States, Japan and other countries are basically in a serious bubble stage. Chinese assets are the only remaining value depression in the world. The downward trend has actually reversed, and these off-market moves have not played a big role.

❗️Why are the off-market moves not very effective?

Because the Fed will eventually cut interest rates in November, the actual result is nothing more than the difference between 25 basis points and 50 basis points, so the underlying logic of the rise of Chinese assets has not changed. Even if there are short-term fluctuations, it will not change the logic of the rise in the medium and long term. The withdrawal of Chinese assets in the past two days, so there is no need to be so pessimistic about this round of market.

China's recent series of monetary stimulus plans, including interest rate cuts, reductions in bank deposit reserve ratios, and injections of $114 billion in liquidity into the market, said that these measures boosted investor optimism. After the measures were announced, the Chinese stock market has achieved its best weekly performance since the financial crisis. Societe Generale strategists also predicted that China will launch a "combination punch" of monetary stimulus measures in the near future to continue to promote economic growth, and the Chinese stock market may soon soar again by 15%.

‼️ The current market is a game between Chinese concept stocks and chip stocks. "Long tech giants" and "short Chinese concept stocks" are the first and second most crowded trades on Wall Street, respectively. KWEB has risen by 50% in half a month, causing 80% of shorts to be liquidated. These shorts are expected to replenish margin soon and sell stocks such as giants and chips.

We can judge that Wall Street institutions will be forced to sell giants in order to replenish margin. When chip stocks represented by Nvidia retreat sharply, that is when Chinese concept stocks have basically peaked. Nvidia is still at a high level, so there is no need to worry too much about holding Chinese assets.

⚠️⚠️How much room for growth do Chinese assets have?

1. On October 7, China's three major stock exchanges in Shanghai, Shenzhen and Beijing will conduct a full network test! It is worth noting that on September 30, the full-day trading volume of A-shares exceeded 2.6 trillion yuan (refreshing the historical highest trading volume set on May 28, 2015). The purpose of the test is to cope with the sudden surge in trading volume and upgrade the trading system processing capacity.

2. On October 8, 2024 (Tuesday), the Chinese stock market will open, and the National Development and Reform Commission will hold a press conference to uniformly introduce the relevant situation of "systematically implementing a package of incremental policies to solidly promote the upward structure of the economy and the continued improvement of the development trend". Goldman Sachs believes that the Chinese stock market still has further potential for growth, and it is expected to rise by 15-20%. Goldman Sachs raised the target price of MSCI China from 66 to 84, and the target price of the CSI 300 Index from 4000 to 4600.

3. From the trend of KWEB, it is currently a weekly K-level breakthrough, breaking through the oscillation range that has been consolidating for 2 and a half years. The longer it is horizontally, the higher it is vertically. According to this rule, there is a chance to reach $50 in the short term, and it is not impossible to rise to $65 in the medium and long term. Even if it reaches $50, there is still about 30% room for growth.