Crazy! Chinese Concept Stocks

$Krane CSI China Internet(KWEB.US)$Hang Seng TECH Index(STECH.HK)

Anticipating the opening of domestic policy space after the Fed rate cut, but did not expect such a significant shift in attitude towards the economy.

Normally, the political meetings at the end of September or in October do not focus on the economy, so this shift in attitude came as a surprise.

The current domestic economy is ailing, with the manifestation of this illness being the gradual solidification of deflation expectations. The root cause is the inability to sustain the previous economic model, the inability to find new driving forces, and once deflation expectations solidify, it becomes a new problem in itself.

Therefore, in terms of policy, the first step is to address deflation expectations on the surface, while fundamentally finding new drivers for economic growth.

Firstly, addressing deflation expectations requires expectation management, and secondly, taking real actions to curb the deflation trend. Against this backdrop, let's look at the recent domestic actions:

a. Joint meeting of the three major financial institutions on September 24: rate cuts, reserve requirement ratio cuts, lowering existing housing loan rates + using securities as collateral for stock purchases + listed companies borrowing money for buybacks, the market is excited, but this excitement is mixed with rationality, after all, there is a fiscal deficit.

b. Political meeting on September 26: The change in attitude in the draft is where imagination is sparked, and the most crucial information is the shift in attitude from the top level.

c. Foreign media articles: Whether it's Bloomberg or Reuters, some short articles related to fiscal stimulus, such as issuing 2 trillion yuan in national bonds, half for stimulating consumption, half for capitalizing banks, and preparing in advance for possible narrowing of interest rate spreads in the banking system.

The entire market, from media rumors to official releases, has now become a state of the central bank igniting, the top leader stamping, and the finance father ready to go.

From "ABC" meaning "anything but China" to "ABC" meaning "all in China," the shift in attitude has led to a continuous frenzy in Chinese assets. Of course, the recent buzz about David Tepper saying "everything on China, don't care about hedge" and so on, firstly, he had already bought Chinese assets in the first quarter to some extent, to a certain extent, the actions determine the mindset.

In observing the prescription for curing the domestic economy, here are a few points that Dolphin Jun is looking at:

a. High-level attitude shift: How much is hype, how much is sincerity?

b. Monetary policy intensification: How loose is the price? How much is the quantity? How does it coordinate with fiscal policy?

c. Loose fiscal policy: Where exactly will fiscal policy focus on? Supply side? Demand side?

Currently, it does seem that the attitude has shifted, but with how much expectation management and how much genuine looseness, the ultimate outcome still depends on how well the policies are implemented.

Monetary looseness is already quite evident, mainly in terms of expectation management, still very resolutely promising more.

So, those advocating for strong looseness are truly concerned about fiscal policy, which is the most crucial aspect and where the sincerity of the shift will be truly demonstrated: money has been released, whether to lend through traditional channels or to directly spend by the government, and where the government spends directly is the real issue.

However, there are opposing voices to such policies:

For those worried about long-term issues, isn't this kind of Modern Monetary Theory (MMT) just a 10x version of slum redevelopment? Why shouldn't we see this as a case of taking poison to quench thirst?

But the current situation is such that the symptoms of the disease are becoming the disease itself, so we need to first treat the symptoms (boost domestic demand, reduce precautionary savings), and then slowly look for new drivers of growth.

From an investment perspective, out of the three steps a, b, c, two steps have already been priced in, and what's missing now is the most crucial third step. Even for the third step, it depends on the policy announcement and implementation, as well as whether there will be any discounts in the actual implementation, considering that the early-year budget was countercyclical but actual spending is procyclical.

In the current overall undervalued market situation, there has already been a more than 20% increase, and next step is to reevaluate the expectations of fiscal policy. By the time the actual announcement is made, the market is likely to have already factored in a significant portion, as economic issues, including addressing the root causes, establishing long-term security for residents under domestic demand drive, creating an innovative institutional environment, shaping new growth drivers (igniting the animal spirits of the entire society), are not issues that can be solved overnight