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Officials say the real estate market is bottoming out. What’s your view on China's property market?
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Alex Wong Cian Yih joined discussion · Oct 3 09:53

The Market Continues to Expand: Shorting Is Going Against the Trend

Yesterday, I shared an article discussing the recent stock market surge in China, fueled by government stimulus. Today, I want to dive deeper into the ongoing developments and the feedback I’ve received, exploring what might happen in the coming days.

First, let’s address the fact that short sellers have suffered significant losses in this rally. Data shows that short positions have incurred losses totaling billions of dollars. Despite the fact that Chinese stocks and Hong Kong-listed stocks have already seen substantial gains, the market could continue to expand due to ongoing policy support from the Chinese government. As investors, we must recognize that China operates in a policy-driven market, which fundamentally differs from the free markets we are used to in places like the United States or Singapore.

Typically, we rely on fundamentals to gauge a stock’s potential—strong earnings and a stable macroeconomic environment lead to rising stock prices. But in a policy-driven market like China’s, the stock market can lead the economy. When the stock market rallies, it instills confidence in the public. This leads to more spending, investing, and activity in the real economy, including buying houses, going out to the movies, dining out, and so on. The money starts flowing, stimulating the economy as a whole.

The Chinese government has decided to use the stock market as a lever to revive the economy. In real estate, we’ve seen renewed interest in major cities during the recent National Day holiday, with potential buyers flocking to view properties. Meanwhile, the stock market is experiencing the “Davis Double Kill” effect, where both valuation recovery and earnings growth are being driven by policy shifts. Foreign capital continues to pour in, particularly through the Hong Kong Stock Exchange, keeping the momentum going even though mainland Chinese exchanges are still closed for the holiday. The stimulus’s impact on both consumption and the housing market has been immense, and the stock market is reflecting that.

If you’re considering shorting Chinese or Hong Kong-listed stocks, think twice. Going against the Chinese government is risky business. This surge isn’t just happening by chance—it’s being directed from the top, with Xi Jinping himself likely pulling the strings. The entire country’s resources are backing this rally. To short the market now would be to bet against the might of the Chinese state, and in this policy-driven context, that’s almost guaranteed to end badly.

With policy support firmly in place, even any pullbacks won’t last long. The risks of shorting are simply too great, which makes this the wrong time to consider going short. Instead, we should be paying attention to the next moves in GDP and economic data in the coming quarters. If the stimulus does not substantially improve the real economy, there might be an opportunity to short later. But for now, the rally is strong, and China’s stocks are still cheap compared to the U.S., even after the recent run-up. That alone tells us how expensive U.S. stocks have become. So, even if you’re not bullish on Chinese stocks, this is certainly not the time to short them. If you must sit out, do so, but don’t short.

Once again, let me emphasize: now is not the time to short!

If you found this article helpful, feel free to like and follow my profile for more insights. I hope my thoughts can help you better understand the market dynamics at play.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only. Read more
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Alex Wong Cian Yih
Long-term value investor, focused on identifying undervalued stocks through thorough market analysis and fundamentals.
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