馃惒 CHINA: THE SLEEPY DRAGON 馃惒
China has been on the scene because of its economy. In the market, it has the problem of the debt in some popular Companys like Evergrande or the Railways cases [ National Security: Railway Industry ]. In addition, there is a lack of trust in quarterly reports due to the refusal to be audited by Western authorities (a case of misreporting was Luckin Coffee China), the possible persecution of anyone who does not agree with the ideology (the most notorious case is what happened with Jack Ma, CEO of Alibaba) and government control over companies that makes a delisting diligence on NYSE and NASDAQ.
In the streets and society, there are no big news. China will ban any economic and political information, and this should say a lot. The latest news is that China could face a deflationary process, while expansionary policy and the government bailout are having an effect, as the expectation of economic growth has declined. China will grow ± 3%, not the ± 5% expected. Nevertheless, Western countries will also not be allowed to exceed ± 2% with an inflation that will also not be allowed to drop until ± 2% in 2023.
The worst seem have happened and the Chinese stocks do not over reacted. This is a trigger that was expected, and I had warned on some trading ideas before. For the time being, some institutional and retail investors seem to have exited and fear has gained ground. In that sense, if all the above are risks discounted, the dragon could wake up.
The chart shows some examples of Chinese stocks contrasted with some Indian, with the Korean and Japanese index, in order to set a reference regional. Over 3 years, the A50 is more likely to appreciate than the others. The stark truth is that since February 2021, the A50 has been a perpetual bear market. Nothing guarantees a trend reversal; this is how there could be a capitulation now (perfect timing).
In the West, bear markets do not usually last >2 years. Perhaps, the real intention is a slow accumulation phase to launch assets higher, and then sell everything at a higher point, thanks to a normalisation of diplomatic relations between the US and China. Today investors are being warned of a major conflict, but it would be too soon announced for that... Or is it?
The best analysis is yours!
J. Joel Padilla
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