"Emerging Markets Guru Echoes Wall Street's 'Long China' Call: Stock Party Continues"

2024-07-13 97 Comments

Known as the "Pope of Emerging Markets," the Wall Street veteran Mark Mobius recently stated in an interview that the rebound in China's stock market could continue if policymakers keep introducing measures to support the market. Mobius's bullish view aligns perfectly with the perspectives of Wall Street financial giants such as Goldman Sachs and Citigroup. They all believe that the recent surge in China's stock market (including Hong Kong stocks and A-shares), which began in late September, is not a flash in the pan. Instead, it is driven by expectations of strong government stimulus policies for the financial market and the real economy, and this surge marks the beginning of a new round of an "epic long-term bull market" in China's stock market.

"The bearish sentiment has been completely shattered, so we can expect the market to continue to be strongly bullish," said Mobius, the chairman of the Mobius Emerging Opportunities Fund and an investor in emerging markets for decades, in an email on Monday. He also emphasized in the interview that the duration of this rebound in China's stock market will depend on "the many measures taken by the Chinese government to increase liquidity in the market."

This 88-year-old fund manager, renowned in the global investment community, turned bullish on China's stock market earlier this year, mainly due to the government's significant measures to support the real estate industry. Since late September, the government has announced a series of new stimulus measures, including interest rate cuts, reserve requirement ratio reductions, and trillion-level liquidity support. The highest level has also clarified the policy tone of boosting the private economy, vigorously stimulating consumption, and comprehensively improving residents' income to boost the economy. As a result, the benchmark indices of the Hong Kong and A-share markets have soared rapidly in just a few trading days.

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After the announcement of a series of policy combinations, Mobius quickly stated that the strength and timing of this round of stimulus policies exceeded expectations, and China's stock market has regained vitality. In the short term, the rebound brings significant investment opportunities for industries such as technology and consumer goods.

Since September 24, the Chinese government has introduced a package of stimulus measures to boost China's economy, while providing extremely strong liquidity support for the domestic financial market. It also strives to revitalize the domestic real estate industry, which has been in a continuous slump amidst the pain of the debt crisis. This package of policies has comprehensively boosted global investors' confidence in the Hong Kong and A-share markets. It is understood that the benchmark index of the Hong Kong stock market - the Hang Seng Index - has risen by more than 35% in the past month ending on October 7, becoming the best-performing benchmark stock index among more than 90 global stock indices during the same period this year.

In recent interviews, Mobius still emphasized his bullish stance on China's stock market, stating that China's stock market will have a broader range of upward space under the policy support for promoting economic growth. However, when discussing the reopening of China's A-share market after the National Day Golden Week holiday, he is not in a hurry to blindly increase positions. "We are waiting for the market to stabilize, so the market reopening after the holiday is not the time to rush in," he said in the interview.

Before the opening of A-shares on Tuesday, the bullish sentiment on Wall Street was already very strong. Since the Golden Week holiday began last week, Hong Kong stocks have continued the strong upward trend since the end of September but have significantly corrected on Tuesday under the pressure of profit-taking. Since the Chinese government introduced the heavy stimulus policy "combination punch" on September 24, the Hang Seng Index has risen by 18%. The Hang Seng Technology Index (referred to as "Hang Ke Zhi"), which covers Chinese technology giants such as Alibaba, Tencent, and Baidu, has risen even more strongly than the Hang Seng Index, with a rise of 33% since September 24.

In the US stock market, this epic bullish enthusiasm for China's stock market has spread to almost all ETFs related to China's stock market - especially those that leverage long positions in China's stock market, as well as star Chinese concept stocks such as Alibaba and Baidu. The 3x Leveraged FTSE China ETF (YINN.US) has seen an astonishing increase during the National Day holiday, with a rise of up to 130% since September 24. The 3x Inverse Shanghai Composite ETF (CHAU.US) has also seen an astonishing rise during the same period, with a rise of 129%. The value of Chinese concept stocks and leveraged long positions in China's stock market has soared in just a few days after a three-year period of slump, highlighting the strong bullish sentiment of foreign capital towards China's stock market.

From the trend of Hong Kong stocks and US Chinese assets, it can be seen that most Wall Street investment institutions are undoubtedly very optimistic about the opening of A-shares. During the National Day Golden Week, A-shares were not open, but they used real money to significantly raise the Hong Kong and US stock markets' Chinese concept stocks, reflecting these foreign institutions' expectations for A-shares to continue the strong upward trend next week. As expected, as of Tuesday's closing, the Shanghai Composite Index rose by 4.59%, the ChiNext Index rose by more than 17%, and the turnover of Shanghai and Shenzhen exceeded 3.4 trillion, setting a historical record.The government's large-scale stimulus plan has triggered a new wave of foreign capital inflows and a frenzy of upgrading investment ratings for China's stock market. Some foreign institutions that have long been bearish on China's stock market (including Hong Kong and A-share markets), such as the global asset management giant BlackRock Inc. and the Wall Street financial giant Morgan Stanley, have also turned bullish and are pushing for a significant rebound in China's stock market with real money.

BlackRock, which has long been cautious about China's stock market, recently stated that it would upgrade its rating on Chinese stocks from "neutral" to "overweight." The institution believes that given the near-record discount of China's stock market compared to developed market stocks, and the presence of strong catalysts that may stimulate investors to re-enter the market, there is still room for major institutions to moderately increase their holdings of Chinese stocks in the short term.

The world-renowned billionaire investor David Tepper, who founded the hedge fund Appaloosa Management in 1993, advised investors to "buy everything" related to China. Tepper attributed his large bet on the Chinese stock market to the country's massive stimulus package introduced this week. In 2023, Tepper had followed the global AI trend, and now this hedge fund industry heavyweight is loudly calling to "buy everything" related to China and sell high-valued US tech stocks like Nvidia.

Goldman Sachs, known as the "bullish flag bearer of the global stock market," upgraded its rating on China's stock market to "overweight" in its latest report and raised its target for the CSI 300 Index from 4,000 to 4,600. On Tuesday, the CSI 300 Index closed at 4,256.10 points. Goldman Sachs also raised its target for the MSCI China Index, which includes core Chinese assets such as Alibaba, Tencent, and Kweichow Moutai, from 66 to 84, compared to the MSCI China Index closing at 76 on Monday. In terms of industry allocation, Goldman Sachs said that due to increased capital market activity and improved asset performance, it has upgraded insurance and other financials (such as brokers, exchanges, and investment institutions) to "overweight." At the same time, Goldman Sachs maintains its "overweight" stance on China's internet and entertainment, technology hardware and semiconductors, consumer retail and services, and daily necessities.

Another major Wall Street bank, Citigroup, recently published a research report stating that it would raise the target for the Hang Seng Index, the benchmark index for Hong Kong stocks ending June 2025, by 24% to 26,000 points, and set the target for the end of 2025 at 28,000 points. Citigroup's targets for the CSI 300 and MSCI China Index for the first half of next year were raised to 4,600 and 84 points, respectively, with targets for the end of next year set at 4,900 and 90 points.

Global investment institutions such as Wall Street seem to be taking profits from the huge funds in Indian and Japanese and Korean stock markets and starting to flow towards the Chinese stock market, which has more valuation advantages and will continue to benefit from strong stimulus policies in the future. The Indian benchmark index, the Nifty Index, fell by 4.5% last week, marking the worst weekly performance since June 2022.

According to Nikhilesh Kasi, a Goldman Sachs trader in India, the most frequently asked question by clients in the past two weeks has been, "Are we seeing funds flowing from India to China?" Kasi has clearly answered, "Yes," and explained that according to the capital flows they have observed, this trend is very obvious.

The latest research report released by CICC states that the latest fund flow data from EPFR shows that overseas active funds have seen their first inflow in 14 months. The CICC research report shows that passive foreign capital inflows have accelerated and remain the main force of inflows. As of last Wednesday (September 26 - October 2), passive funds flowed into Hong Kong stocks and ADRs at $2.87 billion, which is 3-4 times the scale of the previous statistical week and a new high since 2016. The core focus of foreign capital flows is that last week, overseas active funds turned into inflows of $190 million into A-shares and $120 million into Hong Kong stocks and ADRs. Although the scale is not large, it is the first net inflow after 65 consecutive weeks of outflows since the end of June 2023. Regionally, it is mainly active funds investing in China and the entire Asian region. In emerging markets, the scale ratio of passive to active funds is close to 2:8, so active funds dominate absolutely.

The core of the cautious stance: Subsequent fiscal measures need to implement specific policies to promote the economy.

In this once sluggish stock market, there are still some opposing voices. In the view of these more cautious analysts, the direction of China's stock market depends on whether the government will take more specific stimulus measures to support economic growth and wait for the government to support its stimulus program promises with real money.Fund manager Rajiv Jain, who oversees the GQG Partners Emerging Markets Equity Fund with a scale of up to $23 billion, anticipates that this rebound could be short-lived, while economists at Nomura warn that the risk of a bubble burst similar to that of 2015 still persists.

The sudden new bull market in China's stock market has sparked concerns among some analysts that the gains may have gone too far and too fast. Some analysts question whether the Chinese market can continue to revive if deeply entrenched economic issues (such as long-term imbalances in real estate supply and demand) remain unresolved.

"While the stock market reaction has been generally positive, it depends to some extent on whether strong fiscal stimulus plans will be implemented specifically," the strategy team at Amundi Investment Solutions, including Alessia Berardi, wrote in a report. "In the short term, a combination of a series of monetary easing policies and targeted substantial housing support should bring a temporary boost, but a more lasting recovery may require more decisive fiscal action."

Tai Hui, Chief Market Strategist for Asia-Pacific at J.P. Morgan Asset Management, said in a media interview: "For me, the change in direction and mindset of the authorities is very important, but the market is looking forward to the specific spending of consumers during the Golden Week holiday, and how the government will follow up with fiscal support. These will be the key catalysts to maintain the strong stock market momentum we have seen so far." "Some foreign investors may choose to wait for economic data to bottom out and for new policies to directly shift towards consolidation."

Lynn Song, Chief Economist for Greater China at ING Bank in Hong Kong, said: "There are still some significant challenges to be addressed, and it is not an easy path. We need to ensure that a series of policy measures can effectively stabilize the downward trend in the real estate market, rather than just leading to hot money flowing into the stock market." Lynn Song also stated that if the Chinese stock market cools down, bonds may benefit. "If there are any issues in the market going forward, we will definitely face the risk of returning to an environment similar to the previous few months."

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