Chinese equities have finally turned upward. There’s growing optimism Beijing crackdowns are ebbing, lockdowns are easing and stimulus will be flowing. It may look like a cheap hedge against the Fed, but hope is not a fundamental, says petesweeneypro
used to set mortgage pricing on May 20. Local traders are behind most of the rally for property developers and beyond, but foreign money, which had been flowing out, also has started coming back in.Still, the People’s Bank of China fears inflation, capital flight and more bad debt. That is why monetary easing has been incremental. Dangers of recession among trading partners pose fresh challenges to exporters, andlooms.
Serious offshore money is also evacuating Chinese fixed income. As for regulatory enforcement, real estate companies are still defaulting and even if Beijing has stopped flogging its consumer internet, the restrictions look lasting. China’s discount is therefore less attractive than it looks. The S&P 500 offers twice the dividend yield as companies on the CSI300, double the return on equity and has outperformed it by 25 percentage points over the last five years, Refinitiv data shows. On balance, the stock surge appears most linked to stimulus expectations. All things considered, Chinese stocks are not only decoupling from international markets, but from some harsh realities.
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