☀️☕️ China’s Market Bazooka(ish)

📊 Also: US 3rd record; Netflix so Chill; HK tech surge; Ultra-loose Japan, Bitcoin post-ETF slump 🎓 Crowded Trades (All In The Price)

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📈 Market Roundup [24-Jan-24]

US large-cap S&P 500 closed 0.29% UP ▲

Tech-heavy Nasdaq Composite closed 0.43% UP ▲

Pan European STOXX Europe 600 closed 0.28% DOWN 🔻

HK/China's Hang Seng Index closed 2.63% UP ▲▲

Japan's broad TOPIX closed 0.11% DOWN 🔻

📝 Focus

  • China’s Market Bazooka(ish)

📊 In the Markets

  • US 3rd record; Netflix so Chill; HK tech surge; Ultra-loose Japan, Bitcoin post-ETF slump

📖 MoneyFitt Explains

  • 🎓 Crowded Trades (All In The Price)

💸 Personal Finance Corner

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📝 Focus

China’s Market Bazooka(ish)

China is considering a 2 trillion yuan ($280 billion) stimulus package “to stabilise stock markets” by buying onshore shares through the Hong Kong exchange link with funds sourced from the offshore accounts of state-owned enterprises, according to Bloomberg. 

At 2.5% of the combined Shanghai and Shenzhen markets by value (and 1.5% of 2024 GDP for a sense of scale), it is definitely some sort of a bazooka, especially compared to estimated year-to-date outflows from China's stock market of about  $5bn.

Investors were not impressed, as it doesn’t address the confidence crisis unleashed by the ongoing collapse in home prices and the even more insidious effect of increasingly entrenched deflation. (MFM: China - Deflation Nation, Deflating China.)

..... ▷ According to MDPI, real estate assets made up 41% of all assets in 2019 and were still the most popular way for Chinese individuals to invest their personal wealth and savings. At 8%, stocks trailed far behind.

Stocks are a really small part of the picture for most Chinese households- Image credit: MDPI (under CC BY)

Other data show 70% of family assets tied up in real estate, with Bloomberg Economics estimating that every 5% decline in home prices will wipe out 19 trillion yuan ($2.7 trillion) in housing wealth.

China residential property prices - official year-over-year % change. Private estimates are lower.- Image credit: Trading Economics

  ..... ▷ China’s recent round of property stimulus measures started last September and included more mortgage rate cuts, funding support for property developers and lowering down payment ratios for second-home purchases.

It remains unclear if measures like these will be able to prop up either prices, home sales or the many weak property developers in the long run unless demand somehow comes roaring back given the extent of current oversupply. 

..... ▷ But negativity over China is very much the consensus view, and though seemingly very well justified, it just means that negative news going forward could be more and more priced in🎓 … with anything slightly positive possibly leading to an excessive technical bounce of some sort. 

Watch for headlines from experts saying that China is “uninvestable” (as in the middle of 2022 at the height of the Zero Covid policy.)

By the end of last year, the FT calculated that 90% of the foreign capital that entered China's stock market during 2023 had exited, reflecting scepticism about Beijing's commitment to boosting sluggish growth. 

Net foreign investment in the year (not in total) had plummeted from its August peak of Rmb235 billion ($33bn) to Rmb31bn ($4+bn), triggered in part by giant property developer Country Garden’s missed bond payments. (MFM: The Country Garden Card.)

Market performance might have been even worse last year had offshore investors' selling not been met by widespread share buybacks, large-scale purchases by domestic funds and state-run financial institutions under orders from Beijing to provide support.

..... ▷ Global fund managers' pessimism or even capitulation regarding China's economic and stock market prospects can be seen in Bank of America’s monthly Global Fund Manager survey, which showed that in November and December, a majority of Asia-focused managers were already underweight Chinese shares, and that bearishness actually increased in the January survey (taken 5-11 Jan.) 

In fact, short positions in Chinese equities were the second most “crowded trade”🎓 after long positions in the Magnificent Seven mega-cap US tech stocks.  

Some chance it could work out for the market in the short term, but underlying issues aren’t easily fixable- Image credit: SpongeBob SquarePants / Nickelodeon (Paramount) via Tenor

🇸🇬 Singapore: Let’s Get MoneyFitt!

📊 In the Markets

The S&P 500 notched its third consecutive record high close on Tuesday as investors awaited quarterly results from Tesla and other major companies to gauge the sustainability of the recent Wall Street rally. 

Nonfarm payroll employment levels remained unchanged across all states in December, with an unchanged unemployment rate of 3.7%

In extended trading, Netflix surged 8% after blasting past experts’ subscriber estimates, driven by a strong slate of shows, adding 13 million in Q4 to bring the global total to 260 million. 

Netflix is also benefiting from rival media companies’ pivot back to showing content on Netflix from the previous strategy of retaining movies and television series exclusively for their own streaming services. (MFM: … and Chill.)

Management expects double-digit revenue growth for 2024 on subscriber growth and its advertising business, though ads will only be material in 2025.

Ads will start being meaningful from 2025?- Image credit: Mad Men / AMC via Tenor

Verizon climbed 6.7% after a robust profit forecast and strong quarterly subscriber additions. Procter & Gamble added 4.2%, while 3M fell 11% following a downbeat annual earnings forecast. (MFM: 3M Forever… chemical.)

Hong Kong stocks led gains in Asia, with the Hang Seng surging nearly 3%, driven by tech stocks after China's gaming authority removed draft rules proposing gaming spending restrictions on top of the Bloomberg report on the market “stabilisation” package (above.)

Mainland China's CSI 300 rebounded too, but only a muted 0.4% from near-five-year lows. 

Japan’s Topix and Nikkei 225 closed marginally down when, as expected, The Bank of Japan maintained its ultra-loose monetary policy at its first 2024 meeting, with a unanimous decision to keep rates at -0.1% and maintain its controversial and market-distorting yield curve control policy. 

More positively, for those looking for continued ultra-low rates, Governor Kazuo Ueda commented that inflation seems to be heading back toward the bank's 2% target in a sustainable manner. 

Bitcoin has tumbled almost 20% from its post-ETF approval high of $49,000. It extended its recent declines on Tuesday, falling at one point below $39,000 to its lowest level since the beginning of December. That approval was, easily seen in hindsight, definitely fully priced in🎓.

Buy on rumour, dive on news- Image credit: Wonder Woman (2017) / Warner Bros via Tenor

📖 MoneyFitt Explains

🎓 Crowded Trade

Actually, this is exactly what it sounds like. A trading position is said to become "crowded" when held by many investors, who feel so convinced of the logic of the position that they may overcommit and become complacent.

Crowded trades are dangerous because it doesn't take much to send everyone piling out of the trade at the same time with nobody on the other side.

While often based on fundamentals, they are typically also driven by herd behaviour and the fear of missing out (FOMO), leading to a "wall of money" getting into the trade, which can be either "long" (bullish) or "short" (bearish), leading to over (or under) valuation which can persist for a long time or get worse. (This can make it dangerous for contrarian investors to take the other side to catch the eventual sharp correction.)

Often, this can lead to positions that are built on leverage and far exceed benchmark weightings, and the biases built into such positions can be shown in high correlations to other positions in an investor's portfolio (e.g. if the crowded trade is to be long the US Dollar, it could also appear elsewhere in the portfolio as underweight in Emerging Market equities.)

As the father of value investing and Warren Buffet's mentor, Benjamin Graham, said, "In the short run, the market is a voting machine, but in the long run, it is a weighing machine."

Related to:

🎓 Priced In

It's rarely obvious what happens when news affecting a company or a market comes out. The most confusing thing is when something good happens to a company and the stock doesn't shoot up. Sometimes it does nothing or even goes down. What happened? 

We say in the market that the market has "priced it in" or that the news or results are "in the price" or "factored in". This means that the current value of the improved future prospects is already reflected in the price. (An old market saying that can apply here is "buy on rumour, sell on news.")

Inexperienced traders often see what IS positive news and buy. Thinking the fastest trigger finger will win, they often jump in without considering how much may have already been priced in. Sometimes, you can't tell if the news has been priced in until AFTER you see how it trades because the market is made up of so many players with different amounts of information and expectations. 

Experienced investors are often caught off guard and surprised by news or results, too, despite their enormous resources, access to expert analysis, teams of researchers and gigantic salaries! Professional investors spend their entire careers trying to be brilliant at picking winning stocks or timing the market, yet many many studies show that the vast majority of them do worse over the long term than "index-hugging" ETFs.

💸 Personal Finance Corner

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