The Chinese stock market is notching its strongest weekly gain since 2014.

The CSI300 is up by 12.4% this week so far, which is its strongest weekly gain since December 2014 (+13.4%). By the end of the day, it could be strongest weekly gain since 2008. I know we hate investing in China in this sub, but there might be a point for adding a bit of China back into your portfolio today. There are two main investment theses:

1. The Chinese consumer is not financially weak, they are simply sentiment driven.
2. Chinese government support for the market is sending the signal for retail investors to invest.

Point 1: Context for today's environment. Chinese stock market pessimism reached peak in February 2024 as it appeared the government was not keen to provide policy support. This was a mistake in messaging by the CCP. Chinese investing culture is extremely different from the US. While US markets are more sophisticated and fundamental driven – Chinese investors are HIGHLY sentimental. Western media blames the collapse of real estate for the past 2-years of market underperformance, this is true, but not because its hurting Chinese people's financial health. It's the severing of trust in the government (that they would bail out the real estate firms and save the people's money and investment properties) that is the problem. The Chinese gross savings ratio sits at ~44% – unlike US consumers and investors (US personal savings rate is 3%) who CAN'T spend if the market collpases, the Chinese are simply choosing not to consume or invest.

So what does all this mean? It means the CCP needs to send the strongest possible message to the Chinese people that it will support the market and help the property industry. It doesn't actually have to do anything like a massive bailout, but it needs to be performative and convincing – like the Fed is in the US. Once sentiment swings positive, all that unallocated capital floods right back into the market – especially if it becomes a 'government-approved' medium.

Point 2: And that's exactly what the CCP has done in the past week. It TELEVISED a PBOC announcement on a range of (tbh low-impact) fiscal policies. Then XJP called for an “emergency” politburo meeting to implement “forceful” rate cuts and support for real estate. They even allowed state-owned-entities (basically government fund managers) to borrow from the PBOC just to buy and prop up broad market indices. This is hugely sentiment swinging. The CCP is essentially saying to its people that “you can invest safely, we are going to prioritise the market”, and retail is responding.

The fact that the Chinese market might be having its strongest weekly gain since 2014 is pretty convenient because this coincides with the 2014 bubble when the Chinese government incentivised its citizens to invest in the market – a similar environment to today. What happened then:

1. The CSI almost DOUBLED between late 2014 to mid-2015.
2. It caused one of the biggest bubbles and crashes in Chinese market history.

IMO if the market is headed for a V-shape recovery, China does not appear to be a long-term play. But there is a lot to be gained from the compressed spring that is Chinese equities rn. China Tech is arguably their strongest suite of stocks (fundamentally) and they have been going absolutely gangbusters over this week. I see strong upside over a 1-year time horizon, with downside risk being political tensions w/ US and CCP failure to follow through with policy support. I would reduce portfolio exposure approaching 2021 stock market peaks in the case of market exuberance. The ideal scenario is a slow-down or even correction to allow for more sustainable recovery. In which case, corrections represent compelling entry-points.

(Disclosure: 55% of my portfolio is in HK and I am up 15% over 1 week.)