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Jiaxing Li

Wall Street is scrambling to catch up after Beijing’s surprise stimulus onslaught set off a bull run on the Hong Kong and mainland China stock markets, catching short-sellers off guard.
China stocks will gain at least another 10 per cent in a tactical rally in the near term amid more stimulus efforts by the government, Morgan Stanley said in a note to clients on Monday. UBS, meanwhile, bumped its year-end target for the benchmark Hang Seng Index up by 7 per cent to 22,100.
Japan’s biggest brokerage Nomura similarly raised its year-end target for the MSCI China Index to 65 from 59 on the back of the measures from China and the Fed’s unexpected jumbo rate cut on September 18.
A 27-per cent rally in the CSI 300 Index, which tracks the performance of the 300 largest stocks on the Shanghai and Shenzhen bourses, has put the squeeze on short-sellers, costing them US$6.9 billion in mark-to-market losses, according to an estimate by S3 Partners.
The sentiment could not be more different than just two weeks ago, when shorting China stocks was among the most popular trades on Wall Street, just after going long on the so-called magnificent seven technology stocks, according to Michael Hartnett, Bank of America chief investment strategist.
The conviction to short China amid a deflating economy has caused a “massive squeeze” amid the unexpected stimulus-induced rally, Hartnett said in a note to clients over the weekend.
“Market expectations have been rectified decisively, and investor confidence restored significantly” by the recent strong policy signals, said Thomas Fang, head of China global markets at UBS.
Robust support and protection for private enterprises and entrepreneurs is what the market had been hoping for, and now policymakers have sent firm and consistent signals to the market, he added.
The market has been on a tear after Beijing fired a policy bazooka to help end a housing market slump and shore up the economy on September 24. The Hong Kong and mainland markets both entered a bull market amid record turnover on Monday, with some US$1.8 trillion of value restored on the three exchanges over the course of the rally, according to Bloomberg data.
Global investors, who have been reducing their China exposure during the past three years of slump, are now set to rebalance their portfolios, which will add more fuel to the market rally, according to fund manager Value Partners.

Allocation to Chinese equities among global mutual funds shrank to 5.2 per cent in August, compared with a peak of 15 per cent in July 2021. Now that significantly underweight China exposure is set to be rebalanced, the firm said.
“These funds will need to restore their Chinese investments to a more rational level,” said Yu Chen Jun, deputy chief investment officer of equities at Value Partners. “Meanwhile, with restored confidence, Chinese households are reallocating their savings to the stock market.”
It will take time for Beijing’s policy measures to be felt in the real economy and for consumption to recover. Manufacturing data released on Monday showed some weak spots in the world’s second-largest economy, while potential homebuyers remain cautious.
However, Beijing has now shown a “whatever it takes” commitment to economic recovery and a strategic focus on reviving market sentiment by supporting asset prices, with a clear commitment to further action if needed, according to Deutsche Bank. The combination of all these factors should be a game-changer.
“China’s stimulus this time could be different from previous unsuccessful ones,” Yi Xiong, the bank’s chief economist, said in a note on Monday. “Sustained market momentum could trigger a positive wealth effect, potentially reversing the downward spiral in sentiment and encouraging consumer spending and business investment.”


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Global investors, who have been shorting China, now must scramble to rebalance their portfolios to ‘a more rational level’, analyst says


Global investors, who have been shorting China, now must scramble to rebalance their portfolios to ‘a more rational level’, analyst says.


The ‘Big Short’ on China became the ‘Big Squeeze’ that caught Wall Street on the back foot

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Global investors, who have been shorting China, now must scramble to rebalance their portfolios to ‘a more rational level’, analyst says

Global investors, who have been shorting China, now must scramble to rebalance their portfolios to ‘a more rational level’, analyst says