To The Moon

The ongoing meeting of China’s National People’s Congress Standing Committee could indeed be pivotal for the Chinese economy, especially in light of recent sluggish growth figures and underwhelming recovery from post-COVID challenges. There is substantial speculation that this meeting will introduce targeted fiscal stimulus to boost domestic consumption and support infrastructure projects, particularly in sectors like green technology and manufacturing, aligned with the state’s long-term vision for “high-quality development.” This policy could be impactful for China-focused stocks and ETFs, presenting promising trading opportunities.

China’s economy has struggled with weak consumer demand, regional financial strain due to the real estate downturn, and rising debt. A potential stimulus announcement, especially if contingent on the outcome of the U.S. presidential election (where a Trump win might lead to expanded support), could enhance market optimism. Furthermore, Beijing is expected to remain cautious about massive “flood-style” stimulus to avoid further debt and inflation risks. Instead, policymakers will likely roll out moderate support, channelling funds into state-backed industries, infrastructure, and green technology, which may bolster the market’s resilience.

Trading Idea #1: Leveraged ETF on Chinese Equities ($Direxion Daily FTSE China Bull 3X Shares(YINN)$)

Given the cautious yet supportive fiscal approach likely to be implemented, leveraged exposure to Chinese equities via YINN could capitalize on a near-term rally in response to stimulus announcements. YINN provides 3x daily leveraged exposure to the FTSE China 50 Index, a composition of China’s large-cap companies, which may particularly benefit from infrastructure spending, green technology funding, and industrial support.

Entry Strategy: With YINN currently trading near $33.95 (closing price on Nov 4, 2024), entering on a breakout above $34.50 with an initial target around $37.00 offers a good risk-to-reward ratio. This setup takes advantage of a potential near-term rally if announcements from the meeting are received favourably. A stop loss at $12.00 would mitigate risk if stimulus measures underperform or investor sentiment declines.

Trading Idea #2: Long Call Options on $Alibaba(BABA)$

Alibaba (BABA), one of China’s largest and most influential e-commerce companies, stands to benefit from increased consumer spending initiatives expected in the upcoming announcements. The stimulus is likely to include vouchers or subsidies aimed at boosting consumer demand in urban areas, which could help BABA regain its footing and drive higher revenues in its core e-commerce segments.

Option Strategy: Consider buying call options on BABA with a strike price of $100, expiring in December 2024. This option currently trades around $5.50-$5.65 per contract, making it a leveraged play on the anticipated uptick in consumer activity if stimulus policies unfold as expected. An immediate goal would be to capture gains should BABA's price move toward $105, with a plan to sell the call option if BABA reaches this level. This strategy allows for an attractive risk-to-reward ratio, considering the potential for a rally and increased consumer spending.

Outlook and Risks

While these strategies carry strong upside potential, there are risks. The expected stimulus measures may fall short of market expectations or focus narrowly on state enterprises, limiting the impact on private and consumer-facing sectors. Further, the U.S. election outcome introduces additional uncertainty.

In summary, YINN and Alibaba options are two strategies with high potential to profit from China’s upcoming policy announcements. These approaches capitalize on stimulus expectations for industrial sectors and consumer spending boosts, though traders should stay alert to the evolving geopolitical and domestic policy landscapes.