What is the China Market Telling Us?

Skepticism on the recovery and worries over the US-China relations...

“A question that we ask ourselves every day: In what ways we could be wrong?” Charlie Chen, CIO, MegaTrust Investments

China market = stocks traded on the Shanghai, Shenzhen and Hong Kong stock exchanges. If you don’t know the difference between A and H shares, onshore vs. offshore markets etc, please read my primer here.

FYI, the China A-share market is the second largest stock market globally, with over 5,000 stocks and a total market cap of RMB 97 trillion (USD 14 trillion) as of April 21, 2023.

I’ve written extensively about the macro and policy trends in China. Here is a two part series on how to think about such risks broadly as an investor…

Our differentiator is that, we don’t just analyze macro for the macro sake. Our macro research has one goal only: to make money or avoid losses in the stock market.

Our approach can be boiled down to two things:

1. Drawing investment implications from the macro trends, in terms of sectors and stocks. Here is an example based on Hong Kong’s reopening.

2. Understanding what the market tells us about the macro changes, so that we can identify any expectation mismatch and improve upon No. 1.

This article is about No. 2, the “reverse engineering”.

Skepticism on the Economic Recovery

Today, the China market trades in such a way that:

• The recovery isn’t happening? or

• The recovery is already over? or

• The recovery is priced in?

It could be all of the above, I think. The market simply doesn’t have confidence in the current recovery. Let me explain.