The Dragon Bouncing BackSwift dismantling of zero-Covid policy in China has triggered a surge in demand resulting in robust economic recovery. Is this a flash in the pan or a structural shift?
Bouncing off from 2022 bottom in early November, Chinese equities (represented by FTSE China 50 Index, "China50 Index") rallied 64% on COVID easing. The rally has stalled based on specific sector weaknesses causing a 12% correction in February.
This paper argues that record revenues (over CNY holidays in January), anticipated pro-growth Government stimulus, record-levels of consumer savings, and loose monetary policy will collectively drive Chinese equities higher.
A long position in CME’s E-Mini FTSE China 50 Index futures will deliver a reward-to-risk ratio of 2.35x while riding this economic shift.
SECOND LEG OF RE-OPENING TO LEAD TO RECOVERY
Five reasons support our bullish stance on Chinese equities:
First, favourable technical signals. Stalled rally plus weak sentiments have caused the markets to retrace 12%, leaving it right below a key Fibonacci retracement level. This suggests that the FTSE China 50 Index could continue its upward trajectory in 2023 as reopening turns into recovery.
Second, pro-growth fiscal policies. Investors hold high anticipation of upcoming National People's Congress (NPC) scheduled for early March. During the “Two Sessions,” the government is expected to make pro-growth policy announcements to boost the economy.
Historical analysis shows that the Two Sessions (NPC plus top political advisory body meeting) tend to provide solid tail winds to the stock market. Shares have previously rallied ahead of the meetings and afterwards as investors digest the news. Over the last decade, real estate & healthcare shares delivered the largest excess returns following these meetings.
Third, accommodative monetary policies. Meanwhile, PBOC added liquidity into the financial system to meet a rapid rebound in loan demand. PBOC kept short-term & long-term Loan Prime Rate (LPR) unchanged for the sixth straight month. Short-term LPR was at 3.65%. Long-term LPR (used to calculate mortgage rates) was at 4.3%. Both are at their lowest level in 20 years as China tries to balance economic growth and currency stability.
Fourth, revenge spending. Forced to stay home due to Covid restrictions & unable to spend, Chinese consumers saved one-third of their income last year, depositing RMB 17.8 trillion (USD 2.6 trillion) into banks. Even for a thrifty nation like China, that's massive. With restrictions gone, will Chinese consumers revenge to spend their excess savings?
Finally, valuations of Chinese shares are seemingly still in bulls’ favour despite the reopening rally. The MSCI China Index is trading at 10.9x forward P/E, below the 10-year average of 11.2x.
In tandem with equity market price retracement, China centric commodities such as Iron Ore and Copper have also stalled. But are looking to rise again.
ECONOMIC DATA PAINTS A HOPEFUL FUTURE AHEAD
Economic data from China show positive signs of economic recovery in 2023. Purchasing Manager Index (PMI), an important leading indicator of business activity, rebounded sharply in January.
GOVERNMENT PRIORITIZING ECONOMIC GROWTH
The Chinese government has announced stimulus packages to support its struggling Real Estate and Tech Sectors. For instance, Guangzhou recently committed $29 billion to local tech funds to inject capital into high-tech sectors.
The government also announced a 21-point plan in January to boost property developer’s balance sheets with $67 billion in aid.
Moving in tandem with pro-growth Government accommodative fiscal policy, the PBOC continues its commitment to accommodative monetary policy by keeping key short- and long-term Loan Prime Rate (LPR) at their lowest level in almost two decades to boost growth.
However, this monetary stimulus comes at the cost of rising inflation in the country.
PROFESSIONAL INVESTORS ARE BULLISH CHINA AGAIN
In a note recently published by Goldman Sachs, the bank expects Chinese stocks to surge as much as 24% by the end of this year as the economy shifts from reopening to recovery.
The bank highlighted that "professional speculators" on their prime brokerage platform are showing a greater appetite for Chinese stocks.
Goldman highlighted that hedge funds had substantially re-risked their exposure in offshore Chinese equities with net Chinese exposure to total equity exposure reverting to all-time highs.
FOREIGN INVESTORS ARE BULLISH CHINA TOO
HKEX's Stock Connect program’s north bound flows shows that foreign investors heavily bought into Chinese equities in January and continue to so do in February despite retracement.
The Shanghai Northbound Stock Connect, which allows HK investors to access Chinese equities listed on Shanghai Stock Exchange (SSE) saw net buying of RMB 83.4B so far in 2023.
The Shenzhen Northbound Stock Connect shows net purchases of RMB 74.1B this year. In comparison, these investors bought RMB 9.6B of Shanghai & RMB 25.4B Shenzhen shares in December.
Besides the connect program, foreign investment into China scaled up in January to the highest level since June 2022. Foreign investors bought RMB 128 billion ($18.7 billion) according to China’s Ministry of Commerce. That was 14.5% higher YoY and a 75% jump in investment into high-tech manufacturing. This spike reversed two months of double-digit drops in late 2022.
DEMYSTIFYING THE CHINA 50 INDEX
The FTSE China 50 Index comprises of the 50 largest and most liquid Chinese stocks that are listed and traded in Hong Kong. The index is specifically designed for international investors to get exposure to Chinese equities.
The China 50 index is dominated by large tech stocks representing 23.4% of the index. Bank stocks have a 18% weightage with retailer shares weighing in at 15%.
The overall index provides a balanced with a mildly skewed tech exposure to Chinese equities.
TRADE SET UP
With a raft of Government and PBOC policies supporting Chinese economic recovery amplified by optimistic investor sentiments, this paper proposes a long position in CME’s E-Mini FTSE China 50 Index futures expiring in June 2023 to harvest a 2.35x reward to risk ratio.
Each futures contract offers exposure to $2 x China 50 Index.
Entry: 12,990
Target: 15,800
Stop: 11,800
Profit at Target: $5,620
Loss at Stop: $2,380
Reward-to-Risk Ratio: 2.35x
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
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Reopening
LU Lufax Most Undervalued Chinese StockFor the China reopening thesis i think LU Lufax Holding is the one of the most undervalued stocks you can own right now! And i will tell you why!
LU Lufax Holding has a ridiculous PE Ratio (TTM) of only 1.81!
The Forward Dividend & Yield is 0.51 (21.79%)!
Last year the stock was $18.30. It has lost most than 90% of its value, while the business is growing and pays dividends.
The yield alone is a big gain, even if the price stays flat.
Last year Morgan Stanley had a price target for LU of $13 while JPMorgan Chase of $15.
3rd biggest shareholder is BlackRock, with an estimated average of $6.11.
You can but the stock now 3 times cheaper than BlackRock.
The average daily volume in the past 3 months is high, more than $10Mil daily (i think someone is accumulating).
My price target is the $7.10 resistance. I believe LU is a premium call.
Looking forward to read your opinion about it!
$WH: A Decent Post-COVID play?As cases drop dramatically and interest rates rise, could affordable hotel name stocks be a good way to get exposure? Presumably as credit comes out of the economy, there will be less desire for higher end names. Also while 41 P/E may be high for a hotel chain, other's in the same space are running extremely high / negative PE's. I'll be looking to play this one to the long side and scaling in. Good luck traders
$AAWW: Flying SoloAAWW continues to benefit while $JETS and stocks like $SNCY continue to push new lows, if you are looking for airline exposure I do believe you will see the best return here compared to the broader sector. Good luck traders!
MGM Resorts Has Pulled BackMGM Resorts recently hit a new 13-year high, and now it’s pulled back.
The main feature on today’s chart is the breakout above $45.10 in early October. It proceeded all the way past $50 (for the first time since 2008) before knifing back to retest the breakout level.
Next, the current price area is near the 50-day simple moving average (SMA).
Third, the recent pullback has dragged the casino stock all the way back down to the bottom of its Keltner Channel. Finally, the dip pulled stochastics down to their most oversold condition since March 2020.
The news flow has additionally turned more positive as travel resumes. Credit Suisse triggered the initial surge with an upgrade on October 12, followed by strong quarterly results on November 3.
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long YOU as global travel returnsYOU with a bullish 20-day MA crossing through 50-day MA. Already filled the gap up so it's ready to continue on its upward trend which seems to be forming a channel that it will trade between. RSI at 50 used to be resistance, now it seems to be support.
Global travel coming back fast. Should be in full swing by the end of the month, the travel ban was lifted on Nov 8th.
YOU provides a very useful service to airports/airlines where they make it extremely easy to verify who you are using biometrics.
Confirm levels and look for Longs for NZ re-openingWith further re-opening of domestic air travel in New Zealand and potential foreign destinations opening with higher vaccination rates - it would seem a good time to start reviewing companies like Air New Zealand.
time to go long $MSGEThe 50-day moving average appears to be curving upwards finally and volume has been declining so there aren't many sellers left. Time for the buyers to take control. I think the stock will pop on earnings and begin an uptrend after earnings are announced. Which will show that the live entertainment business is back in full swing and improving by the day.
The floor is at $60.26
Resistance will be significant at target levels and at the VWAP from the 52-week high.
Free cash flow was up 30% in the last quarter. I think this stock goes to $150 easily.
$XLF: Long financials now...We have a tremendous signal to go long financial names now, as the yield curve is set to steepen once again and yields are rising on the back of the last FOMC meeting outcome, and the reopening momentum generated by the evolution of the Delta variant, and news of an antiviral pill from Merck that can cause a 50% reduction of fatalities and hospitalizations that recently surfaced. Charts are very constructive, as the $USB one I pointed out. I'm currently long a variety of value/financials/energy names as well as crude oil futures options for a while now, since AAII readings sunk below 25% recently. Now the broad market chart looks like a bottom is forming, and today a buy signal popped in $XLF, so the time is now!
Cheers,
Ivan Labrie.
$NXST: Will Recent Broadcasting Woes Subside?Along with $SBGI, $FOX, $NWSA and $GTN companies have seen broad based weakness in view ship. Will the trend continue and lead these lower? We'll see!
BGI Looking To Shine In Reopening TradeBIG Gap up on July 1 after news that BGI reopened in Canada. But now it's at some interesting levels. The 618 fib has acted as support/resistance for a while. Since BGI broke above that, we need to see if it can hold. Next minor resistance seems to be around the .5 Fib then more major at the 382 fib. This 382 level is an area that BGI seems to have had a tough time breaking through. It has tested it but failed more times that succeeded to break through it and hold.
"Clearly, retail is broad, but there are a few names that come to mind. First, luxury brands have taken a focus as consumers have come out of hibernation with fresh capital. Jewelry companies like Birks Group (NYSE: BGI) have gained attention in the market. Birks operates jewelry stores across Canada. As of June 30, 2021, the company said it operates twenty-nine retail stores. It also has its fine jewelry collections available through other companies in the UK and US, including Mayors Jewelers and SAKS Fifth Avenue locations. This week Birks announced that it opened all of its Canadian stores, helping give it a boost in the market."
Quote Source: Best Penny Stocks To Watch Now? 10 Top Epicenter Stocks For Your List
VEON 52 Week Highs But Long Way To GoVEON finally popped its head over that pestering resistance level that it failed to break for months. Now the real fun begins (so to speak). It's back in this no-man's land that it hasn't traded in for some time. What I'm watching is to see if the resistance level finally becomes a new support. Then the tall task: filling and breaking back through that old gap.
"Veon Ltd (NASDAQ: VEON), for example, provides connectivity and internet services. In Pakistan, its operating company, Jazz, recently secured a roughly $320 million syndicated credit facility from a banking consortium led by Habib Bank Limited. This facility will finance the company’s ongoing 4G network rollouts and technology upgrades, among other things."
Quote Source: Best Penny Stocks To Watch Now? 10 Top Epicenter Stocks For Your List
RIG Continues In Its ChannelI put this RIG chart together earlier this month and it continues to hold true. No major consolidation just a channel trade with higher lows getting put in. With global shipping becoming a bigger point of interest right now RIG could be one to watch (assuming they don't do something stupid like raise money at a drastic discount).
"the oil demand this year has only started to rise in the past six months. This is a clear reflection of the effects of the pandemic coming to an end. While no one knows exactly when the pandemic will end, it looks like people are beginning to resume travel internationally and domestically. For this reason, many investors are betting on the future of the energy industry. Whether this is enough to make RIG stock worth watching is up to you."
Quote Source: Hot Reddit Penny Stocks to Buy? 10 That You Should Know About
Death Cross in NetflixThe economy is reopening. People are going back to work. It’s great news for a lot of stocks, but Netflix isn’t one of them.
Today the streaming-video giant’s 50-day simple moving average (SMA) closed at $513.97, or $0.53 below its 200-day SMA. That “death cross” may signal that longer-term momentum has swung more decisively toward the bearish camp.
Another important chart pattern is the period of consolidation around $505 in late May. That’s slightly below the $510 area in late April, which itself followed a bearish price gap.
Next, stochastics were overbought during that last peak, which suggests the bulls might not have much ammunition left.
The macro logic behind this idea is fairly straightforward. NFLX, along with Amazon.com , were the two first major stocks to break out on April 13, 2020, following the coronavirus crash. Both benefited from lockdowns and low interest rates. And now that process is going into reverse.
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SABR looks poised to fill the gapSabre is involved with the travel business so it is a reopening play. Should be a good trade; I won't be in it long. It also popped up with institutional buying of the $14 strike calls.
Fair Value Estimate from Morningstar: $17.10
June Expiration; $14 strike Calls are the way to play it. The more time the better. Will roll the calls out to further expirations and higher strikes as it climbs towards its FVE of $17.10.
AIRBNB LOOKING LIKE A BUY1 wek time frame. reoping stock
looking like a buy:)
i think its a great time to buy in. short sellers are gone,
initial investors sold off stock ???\\
ya bot is going to take postion in the next week
BA on the loose, flying high in the sky!!Caught the breakout on weeklies, then rolled to 6/18 June 250 calls with low 4s average and scaled so riding free calls.
RCL out of the wedge and moving up nicely! Swings up nicely. June calls over 100% and holding SL set to secure green trade
RCL looking like another leg up coming Volume shelf, reopening play, cruises restarting, thesis and chart lining up here.
Boeing Is on the Verge of a Key SignalAfter two months of downside, Boeing may be ready to take off.
Notice the downward-sloping trendline in the aerospace giant. BA ended last week above it and is continuing higher today.
Second, the 8-day exponential moving average (EMA) is on the verge of crossing above the 21-day EMA. This is common signal for intermediate-term momentum turning more bullish. MACD is giving a similar indication.
Finally, last week had a bullish inside candle. That can suggest the longer period of weakness is ending and prices are changing direction.
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BA weekly chart showing last two descending wedge breakouts More visual for the possible BA move coming. Going to be looking for June calls for this move. Last few big ones happened fast.
BA out of descending wedge with bounce on retest! BREAKOUT ALERTThe last two times BA has seen this defending wedge breakout since the covid drop it’s seen multi day runs. This could be the start of another leg up and possibly the 300 move. Will be looking to play the breakout not longer dated calls since it’s been so news driven. Will just buy and roll shorter calls as the opportunity presents itself. It has been so news driven I don’t want to play the longer calls and tie up capital. Will be looking at the MA for scales 50 MA is shown and just above current levels.
LB long on retail anticipated gainsWe like the retail earnings this week and the return to brick and mortar workplace on reopening.
As usual, the chart and techincal factors as well as Reward Ratio are more important for us.
