China Rebound: Keeping the 100 Acre Wood Covid-Free

[Sven]

Starting a discussion here on potential plays regarding volatility caused by news insinuating an easing of Covid restrictions in China.

China has adopted a “Covid Zero” policy, vowing to move quickly to crush potential outbreaks regardless of potential repercussions, resulting in Chinese stocks taking a giant Winnie the Poopoo. However as we can see here:

https://www.reuters.com/markets/europe/china-hk-stocks-rebound-sharply-unverified-social-media-posts-over-covid-easing-2022-11-01/

the market is ready to rally on any perceived notion of an easing of policy. In this instance the notion of easing policy any time soon was crushed, and a lot of these stocks fell to what they were trading at before this catalyst.

From this, we can take that:

1. For any company that hasn’t returned to pre-catalyst baseline we are presented with a potential put-play (for example BABA):

We can see the jump from the catalyst on 11/1 followed by a respected downtrend line. In this situation, we got confirmation that there is still a restrictive stance regarding policy which I would take to mean we are headed back to 64 with minimal chance of another catalyst before then. If puts are cheap, I may take one, but I’ve incinerated a lot of money lately on options so what I really want to focus on is:

2. The Reopening Play
   Restrictions will ease in time (March 2023 got thrown around in the catalyst on 11/1). They must for the sake of the economy. A lot of these stocks are near or at ATL. I am also of the mind to believe even if this current policy impacts the economy/stocks negatively, we could see soothing words from Chinese policy makers leading investors to believe its “not that bad”, resulting in a pump.

Please contribute any Chinese stocks you think have growth potential (decent fundamentals, a good product, etc) so that we can keep our eyes on this situation. I myself will probably start accumulating some BABA shares after we see what happens at 64 + the catalysts in the American market such as CPI.

What we need to be cautious of:
What does the overall state of the Chinese economy look like? Are there recession fears for their economy as well? What would a recession in the US do to Chinese stocks? Will they ease covid policy before a potential recession in either country?

These are things I don’t know, and would love to see discussed by others who have a good idea of the current state of either economy and their relation to each other. Let’s make some Yuan.

[macromicrodick]

Great stuff Sven! Looks like rumours of Chinese CDC easing zero-Covid could explain the run up in Chinese markets? Took a call on $YANG so might hold over the weekend

Trying to post correct tweet

https://twitter.com/shanghaimacro/status/1588362222903795712?s=46&t=0je2m0lOS9IuUGaOzaHcwg

[macromicrodick]

Tweet link not working? Here’s is TF post

Discord - A New Way to Chat with Friends & Communities

[jjcox82]

PDD, BIDU and JD are good ones. All have had good earnings and growth consistently.

Good call on watching these. Could be some good plays here.

[greydoge]

another play is just conventional energy. China’s oil and LNG demand have been artificially suppressed by Xi’s lockdown measures, part of why LNG that was suppose to go to China was cheaply attainable by europeans. Energy is already in a good setup currently with massive demand supply imbalance and China reopening would only further the demand side. It also means minimum exposure to Chinese geopolitics where govt can arbitrarily shutdown cities and provinces. $XLE $XOP

[derfam]

[derfam]

I took some PDD 70c for next week for a lotto that we get some news over the weekend. it’s got the least amount of bagholders above it and they smashed last earnings.

[wahoowa]

Not sure how reliable this source is but saw this and wanted to share it:
https://twitter.com/Sino_Market/status/1588788801828139009

[derfam]

China vows to ‘hold fast’ to zero-Covid, cites winter surge fears

oof RIP my calls. Seems a lot of news agencies reporting the same thing, there could be some decent put plays.

[derfam]

Just heard back from my friend who lives in China, he said the lockdowns are getting even worse.

[Sven]

China’s ‘unswerving’ zero-Covid rules see no let up

(thanks @thelaughingman for this article)

We might not see all gains on HSI erased (at least immediately), but I expect a heavy pullback Monday regardless. There’s a chance investors can now see the potential for this play (not that its particularly novel) due to this heavy rally and not sell off everything purchased Friday, but I could be wrong. Kind of cool we got leading information from China via @derfam friend, thanks for that. Looks like we’ll get a decent entry after all.

[The_Laughing_Man]

Apple made an announcement stating they expect lower iPhone 14 Pro & Pro Max shipments due to the reduced manufacturing capacity at the Zhengzhou factory from China Covid lockdown.

Update on supply of iPhone 14 Pro and iPhone 14 Pro Max

[Conqueror]

This comes from @greydoge, it looks as though China may be reopening

https://twitter.com/cathyyuanzhang/status/1599056833267658755?s=46&t=MVwvYb7DGISBZOGAr3dydQ

[The_Ni]

Even more signs of China reopening:

(Source)

(Source)

(Source)

We saw the Chinese markets rally quite a bit the last few weeks; bond yields went up too, corroborating this move, as funds were likely taken out of bonds and dumped into the equity market.

We’ll have to see how this plays out, but if accompanied by government stimulus to jump start the economy, could result in inflation of commodities and energy prices all over.

The flip side is, of course, how China will deal with a possible resurgence of Covid - the Chinese vaccine isn’t that good, vaccination rates are not that high - particularly amongst the elderly, cities are extremely densely populated, and healthcare per capita isn’t quite abundant. We’ve seen all these massive covid camps being set up recently - might be to accommodate the eventuality of covid surges.

[Kevin]

Another positive sign for China re-opening is the slight permission in using the Pfizer/BioNTech vaccine. China is now allowing the vaccine for German nationals, which is a change from not allowing the vaccine to be used at all. Is this a sign that they will open up the vaccine to more user groups to come?

China finally approves an mRNA COVID vaccine—but only for some foreigners

Two years after the first countries approved the Pfizer/BioNTech COVID vaccine for domestic use, China will finally allow the mRNA vaccine to be used domestically—but there’s a catch.

On Friday, China confirmed in a press briefing that it would let German nationals receive the BioNTech COVID vaccine, which uses mRNA technology, in exchange for German health authorities on Wednesday approving China’s Sinovac jab for Chinese nationals living in Germany.

The statement from China’s foreign ministry clarifies an earlier announcement by German Chancellor Olaf Scholz during his trip to Beijing that BioNTech would be made available to foreign nationals in China.

But Beijing’s decision to approve the Pfizer/BioNTech jab for a sliver of China’s population highlights the country’s uneasy relationship with mRNA vaccines and shots developed overseas as Beijing embarks on an exit from its tough COVID-zero policy, which will likely cause a massive outbreak.

[The_Ni]

From Bloomberg. Reproducing entire article in case it gets gated later.

China’s Reopening Comes With a $720 Billion Inflation Bomb

Over the course of the pandemic, China hasn’t offered direct payments to citizens in the way the US and much of the rest of the developed world did to help cope with lockdowns. Instead, Beijing has preferred to focus on corporate aid.

It’s perhaps a surprising strategy from what’s ostensibly a socialist country. China’s focus for decades has been on the supply side, aiding employers so they can keep people at work, hoping to contribute to social stability and development.

One school of thought says this means there isn’t the kind of tidal wave of unspent cash set to hit goods and services suppliers now that China is reopening. In other words, the nation won’t experience what happened in the US, where an outpouring of federal aid kept tens of millions of Americans out of poverty, but also helped build up more than $2 trillion in extra household savings, adding to inflationary pressures.

While this may look good for China, economists at Nomura Holdings Inc. offer caution—and cause for concern. Poring over Chinese bank-account and income data, they calculated that Chinese households have indeed built up excess savings, to the tune of $720 billion.

“Those calling for a mega-surge of Chinese pent-up demand,” the Nomura economists said, “should be careful what they wish for.”

Chinese households might not have benefited from the kind of pandemic unemployment assistance or rescue checks seen in Japan, the US and Europe. But they did ramp up precautionary savings, Nomura economists Rob Subbaraman and Si Ying Toh wrote in a report released Jan. 19. Savers were motivated by the slump in China property values and surge in youth unemployment, the duo theorized.

In the US, consumer spending held up last year even in the face of the most aggressive monetary tightening campaign in more than a generation, thanks in some part to the surfeit of savings.

By contrast, in China, the reopening of the economy is coming at a time when its central bank is in easing mode—potentially making it all the more inflationary.

It’s a given that a grim wild card is economic fallout from millions of potential deaths and hundreds of millions of infections flowing from the unprecedented wave unleashed by Xi Jinping when he ended “Covid-zero.”

With that said, there likely will be two forms of inflationary shock China will impart on the rest of the world this year.

First will come a negative impact on supply thanks to what amounts to non-mandatory lockdowns in China, with factories struggling to keep operations going as sick workers stay home.

Then comes the demand shock, when Chinese consumers resume spending in force, pushing up commodity prices. Weaker spending in the US has helped hold down commodity costs lately, but at some point Chinese imports will boost price pressures.

And don’t forget the export of Chinese demand, most prominently in the form of tourism.

“After three years of isolation, there’s plenty of pent-up demand for foreign travel. We expect outbound tourism to have recovered from virtually nothing to 75% of the pre-pandemic level by the end of 2023,” Sheana Yue, an economist at Capital Economics, wrote in a note Friday.

International policymakers are already on the alert.

At the World Economic Forum in Davos, Switzerland, on Friday, European Central Bank President Christine Lagarde said while the stronger demand will be welcome, China’s reopening “will have inflationary pressure on many of us.”