The voice of "Bullish on China" resounds through Wall Street, will the Hong Kong A shares replicate the "Crazy Bull Curve" of the US stock market in 2023?

From the beginning of this week, the three major financial regulatory agencies gathered together and announced a heavyweight financial market stimulus policy to provide massive liquidity support for the Chinese stock market. Then, on Thursday, the timing of the meeting of the Central Political Bureau of the Communist Party of China and the unexpectedly revealed fiscal policy tone greatly exceeded expectations - this year, there was no waiting until October or December, but an early analysis and discussion of the current economic situation in the September meeting, conveying a signal of extremely significant fiscal and monetary support beyond expectations. The Chinese government's series of combined actions completely ignited extreme optimism in both domestic and international financial markets, with Chinese assets led by the Hong Kong stock market and A-shares experiencing a super counterattack that is enough to be recorded in the global financial market history.

Domestic monetary policy and liquidity facilitation tools provide liquidity support for the stock market, coupled with the push of the fiscal stimulus tone to reverse macroeconomic expectations, driving up the valuations and performance expectations of Hong Kong stocks and A-shares. As a result, the recent Hong Kong and A-share markets have seen an epic rebound. Especially the liquidity benefits brought by interest rate cuts and reserve requirement reductions, as well as the top-level policy tone in terms of macroeconomic fundamentals - boosting the private economy, vigorously stimulating consumption, and comprehensively improving residents' income, are expected to drive the long-term valuation and performance expectations of listed companies in the Hong Kong and A-share markets that have been persistently at the bottom to continue to recover.

Even more optimistic expectations are that this combination of policies may be continued. TF Securities recently released a research report stating that with policy reinforcement and financial leading, the current policies do not represent the full picture of a "comprehensive package of policies." TF Securities stated that the Political Bureau meeting on September 26 proposed to increase the intensity of counter-cyclical adjustments in fiscal and monetary policies, ensuring necessary fiscal expenditures. Therefore, the institution believes that the decision-making process for the complex counter-cyclical policies may be launched in October, with a greater effort in Q4 to achieve the annual targets set at the beginning of the year.

Ultimately, as evidenced by the "water" provided by monetary policy and liquidity facilitation policies being abundant enough, coupled with the establishment of the fiscal stimulus tone, the Shanghai Composite Index recovered from the temporary low point of 2689 to the seemingly insurmountable 3000-point mark in just 7 trading days, with the A-share benchmark index - the CSI 300 Index, marking a super bullish trend this week, surging over 15% in a week.

In the Hong Kong stock market, the optimistic sentiment of anticipating a "long bull market" is even more subdued, benefiting from the unexpected 50 basis point rate cut by the Federal Reserve, initiating an interest rate reduction cycle, as well as the liquidity support provided by domestic monetary stimulus policies. Hong Kong stocks can be said to have enjoyed a "dual liquidity dividend from China and the US," coupled with many favorable catalysts such as domestic promotion fees and policies to promote the development of the private economy. This week, the Hang Seng Tech Index surged by over 20%, and the Hang Seng Index rose by over 13%. As of the close of trading on Friday, the Hang Seng Index has accumulated a 21% increase year-to-date, exceeding the approximately 20% full-year cumulative increase of the US benchmark S&P 500 Index.

Under some policy combinations, the optimistic expectations of the financial market for the Chinese macroeconomy have even spread to European and American stock markets. In the US stock market, the Nasdaq Golden Dragon China Index rose by 10.85% on Thursday, marking the largest single-day increase in 2022. In US stock ETFs, the China Technology ETF (CQQQ) rose by 9.68%, the China Internet ETF (KWEB) rose by 11.55%, and the 3x long FTSE China ETF (YINN) rose by 23.55%.

In European stocks, luxury giants whose stock prices are highly correlated with the Chinese macroeconomic fundamentals and consumption expectations have surged, reflecting European investors' extremely positive sentiment towards the Chinese policy combinations stimulating consumer spending. Over the past five days, the stock prices of many luxury giants including Hermes International Group, LVMH, and Richemont have risen significantly by over 15%, presenting their best weekly performance since 2012.

With massive liquidity support and fiscal stimulus, coupled with foreign institutions such as Wall Street significantly increasing their holdings of Chinese assets, there is an extremely optimistic prediction in the market looking towards the future of Hong Kong and A-shares. It suggests that under the AI boom in 2023, the "crazy bull market" in US stocks could potentially mirror the upward trajectory of the Shanghai and Shenzhen 300 Index and the Hang Seng Tech Index in the medium term at least.

Wall Street Shifts to Bullish on Chinese Stock Market! "Long China" Becomes a New Trend

Looking at the international market, Wall Street investment banks and hedge funds, which have long been cautious about the Chinese stock market, have suddenly turned overwhelmingly bullish on both Hong Kong and A-shares, with a resounding call to "long China".

Represented by Goldman Sachs and Morgan Stanley, top Wall Street investment banks have returned to Hong Kong and A-shares, while hedge fund giants on Wall Street have bet heavily on a new "primary uptrend" super market in the Chinese stock market. Some analysts point out that the recent surge in Hong Kong and A-shares, especially in Hong Kong stocks, is mainly due to the strong leveraged long positions taken by Wall Street hedge funds, forcing some Hong Kong stock short positions to cover their losses.

Data shows that these top hedge funds had already leveraged long positions in the Hong Kong stock market by this Tuesday or even earlier. According to a brokerage report from Goldman Sachs, these leveraged hedge funds' net buying scale on Tuesday in the Chinese stock market (including Hong Kong and A-shares) reached the highest level since March 2021 and the second-highest level in the past 10 years, driven almost entirely by investors increasing their long positions.

International funds betting on the rebound of Chinese stocks through options have also increased. Goldman Sachs' statistical data shows that the outstanding contracts of iShares China Large-Cap Stock ETF call options hit the highest level in a decade, with an increase of approximately 580,000 call contracts on Tuesday.

Goldman Sachs Managing Director Scott Rubner said that the recent performance of the Hong Kong and A-share markets has been very strong, and this momentum has been fully reflected in the U.S. stock market, with the Nasdaq Golden Dragon Index, a benchmark for Chinese concept stocks, soaring 19% in the past four days. Rubner also stated that once the U.S. election is over, the Chinese stock market should become an important part of investors' investment plans. Rubner believes that the long-awaited recovery of the Chinese stock market may finally be here, and global investors may actively participate. In a report to clients on Thursday, he wrote, "I really think this time is different for China." "The resurgent market has quickly become a hot trading target in November and December after the U.S. election." He was referring to the demand for call options expiring at the end of the year.

Goldman Sachs emphasized that before the recent rise, hedge funds' investment in Chinese stocks was less than 7%, the lowest level in about five years. However, earlier this week, they changed direction and poured into the Chinese stock market. As described above, Tuesday's net buying volume of Chinese stocks set the largest single-day net buying volume since March 2021 and the second largest single-day net buying volume in the past decade. Goldman Sachs also believes that compared to A-shares, the profit correction and rebound of Hong Kong stocks may be stronger.

Morgan Stanley, which was high-profile in shorting A-shares last year, is also optimistic about the prospects of the Chinese stock market. Morgan Stanley believes that from a technical perspective, the CSI 300 Index in China may have about 10% upside in the short term. Morgan Stanley's strategists, led by Laura Wang, released a report on Thursday stating that this forecast is based on the analysis of the borrowing cost (2.25%) of the bank's re-lending plan in China and the current dividend yield (2.46%) of the CSI 300 Index.

Morgan Stanley stated that the political conference and stimulus plans announced by the People's Bank of China and other regulatory agencies earlier this week are very positive. They added that what really surprised the market is the unprecedented market liquidity support measures in the Chinese stock market. Morgan Stanley pointed out that the most important thing now is to quickly follow up, clarify the details and timetable for implementation.

Will the "crazy bull market" in U.S. stocks in 2023 be the script for Hong Kong and A-shares?

Such a frenzy inevitably reminds people of the AI investment boom ignited by Nvidia's unparalleled financial reports in multiple quarters in 2023, which then fully drove the "crazy bull market" in U.S. stocks in 2023. In that year, the S&P 500 Index surged by 25%, and the Nasdaq 100 Index, known as the global technology stock benchmark, skyrocketed by 55%. The "crazy bull market" in U.S. stocks in 2023 was fully dominated by Wall Street investment banks such as Goldman Sachs and Morgan Stanley, as well as many leveraged hedge funds.

Looking at the current trends of Hong Kong and A-shares, the market's bullish sentiment brought about by domestic liquidity support policies and fiscal stimulus, as well as the enthusiastic sentiment of Asian investors, is comparable to the unprecedented AI boom in the U.S. stock market in 2023.

Renowned billionaire investor David Tepper advises investors to "buy everything" related to China. Tepper founded the hedge fund Appaloosa Management in 1993 He attributed his big bet on the Chinese stock market to the massive stimulus package rolled out by China this week. Tepper had previously followed the global AI trend in 2023, with his fund, Appaloosa Management, investing heavily in AI beneficiaries such as NVIDIA and Microsoft at the time. The fervent bullish sentiment of hedge funds like Appaloosa towards the AI trend undoubtedly played a key role in driving the crazy bull market in the US stock market in 2023.

Now, this heavyweight in the hedge fund industry advises investors to "buy everything" related to China and sell overvalued US tech stocks like NVIDIA. In an interview with the media on Thursday, he said, "I thought the Fed's actions last week would lead to China easing monetary policy, but I didn't expect their stimulus to be this strong."

As a loose benchmark, the CSI 300 Index, which covers almost all of China's core assets, is compared by some institutions to the S&P 500 Index, considered a benchmark for US core assets. In terms of scale, the CSI 300 Index, along with the S&P 500 Index, the STOXX Europe 600 Index, and the Nikkei 225 Index, collectively constitute the so-called "global core assets," with the CSI 300 Index's scale and influence second only to the S&P 500 Index.

At the same time, the Hang Seng TECH Index, which includes Chinese tech giants such as Alibaba, Tencent, and Baidu, is dubbed the "Oriental Nasdaq" and is compared by some institutions to the Nasdaq 100 Index, which covers US tech giants like Apple, NVIDIA, Microsoft, and Google. As these Chinese tech giants continue to grow in performance and market value, the future "Hang TECH Index" may well be the Nasdaq 100 Index.

With the fiscal policy stimulus, the performance expectations of the CSI 300 Index's constituent stocks are expected to rebound rapidly, thereby driving the index to replicate the bull market curve of the S&P 500 Index in 2023. The Hang Seng TECH Index, which includes Alibaba, Tencent, and Baidu, is compared by some investors to the Nasdaq 100 Index. Moreover, the Hong Kong stock market is expected to benefit more from global liquidity easing expectations compared to the A-share market, as the Hong Kong market, unrestricted to foreign capital, can enjoy the massive liquidity stimulus brought about by domestic stimulus policies, Fed rate cuts, and even European rate cuts.