Scott Rubner, managing director of global markets at Goldman Sachs Group Inc. and the tactician who made the most accurate forecasts this year, said China's stock market has been on a tear, with the Nasdaq Golden Dragon Index surging 19% in the past four days. China's stock market should be a key part of investors' plans after the U.S. election.
Chinese stocks listed in the U.S. extended gains on Thursday after the Politburo announced fiscal spending plans to boost consumption, control local government debt and stabilize the property market. The moves are part of a coordinated economic plan unveiled this week that includes a broad package of policies aimed at curbing slowing growth and boosting consumer confidence.
The Golden Dragon Index, made up of stocks of companies listed in the U.S. but with most of their business in China, rose as much as 13% on Thursday, its biggest intraday gain since March 2022. The CSI 300 index, a measure of onshore Chinese stocks, has risen 11% over the past four trading days and is set for its biggest weekly gain in nearly a decade.
Rubner believes that the long-awaited recovery in Chinese stocks may finally be here, and if so, investors should get in on the action.
“I really think this time is different for China,” Rubner wrote in a note to clients Thursday, noting that being underweight Chinese stocks is the “biggest consensus trade” in global equities.
“The re-emerging market has quickly become a hot trade post-US election in November and December,” he wrote, referring to demand for call options expiring at the end of the year.
Take hedge funds, for example. Before the recent rally, hedge funds allocated less than 7% to Chinese stocks, about a five-year low. In fact, hedge funds have still been significantly net sellers of Chinese stocks on a cumulative notional basis since the start of 2023.
But earlier this week, they did the opposite and rushed to buy Chinese stocks, with Tuesday recording the biggest single-day net buying since March 2021 and the second-biggest single-day net buying in the past decade, according to Goldman Sachs prime brokerage.
Mutual funds also have more room to buy. Global mutual fund allocations to Chinese stocks were at a historically low 5.1% at the end of August, Rubner wrote. But the bigger boost could come from passive investors. Of the $695 billion in inflows to U.S.-listed exchange-traded funds through 2024, only $4.9 billion would go to Chinese ETFs.
“Chinese and emerging market assets do not benefit from passive inflows on a daily basis like U.S. markets do, but that is changing,” Rubner wrote.
Bloomberg data shows that the Xtrackers Harvest CSI 300 China A-Share ETF (ASHR), which tracks China's domestic A-shares, saw inflows of more than $173 million on Wednesday, the most since June 2022. Rubner expects more inflows to come.
Article forwarded from: Jinshi Data
