To The Moon

On 22 January, according to the Chinese era, the year of the rabbit begins. The rabbit symbolises patience, happiness, and peace. China could use that after the year of the tiger. The low point for the Chinese stock market was reached on 31 October. Since then, the MSCI China index has risen more than 40 per cent. The Golden Dragon index which includes Chinese companies listed in the US is even up 74 per cent. There were two major problems in the Chinese economy that were self-inflicted (and therefore can be solved by Beijing). First, there is a problem in the property market where Beijing cracked down on property developers, leaving a major developer Evergrande in trouble. As a result, the property market was locked, but in recent weeks there have been many initiatives to revive the market. While mortgage rates have risen here, they have fallen by more than a percentage point in China. There was also the zero-covid policy with its many lockdowns. This policy turned 180 degrees quickly after the demonstrations, causing many ill. As of today, international travel is also allowed again from China. The current variant of the virus is highly contagious which ensures that the peak of infection is likely to fall before the Chinese New Year and then disappear quickly. Not the environment in which Beijing wants to inhibit economic growth.

In recent years, the Chinese government has taken advantage of the relatively favourable economic development by introducing many reforms, especially in internet companies. This has put investor confidence under pressure, while many of the rules introduced are almost identical (often less stringent) to rules that also apply in Western Europe and the US. Given the need to show economic success now, these companies are unlikely to be hit hard even in 2023. It all started with a speech by Jack Ma in Shanghai criticising members of the Politburo. After a norm-setting talk, Ant Financial's IPO did not go ahead and several tech companies were targeted. Jack Ma has now been bivouacked in Tokyo for several months.d Last week, it was announced that Jack Ma is diluting his control of Alibaba from above 50 per cent to 6.2 per cent. This will allow Ant Financial to still go public in Hong Kong in a year's time.

While Chinese exports will suffer from the recession in Europe and lower growth in the US, it has much more monetary and fiscal leeway than countries in Western Europe or North America. Furthermore, if anything, the Chinese have been able to save even more in the past three years than consumers in the US or Europe. Also, the Chinese will soon start travelling again, benefiting first Hong Kong and then countries like Japan, Vietnam, and Thailand. As a result, China's economy could grow by more than 5 per cent this year. 

Foreign investors are very wary of Chinese stocks (they just parted ways in 2022), but the recent price momentum in Chinese stocks will attract domestic investors. As in gambling, the Chinese are also strongly momentum-driven in investing. Moreover, many Chinese will no longer speculate in real estate, which is where the average Chinese had more than 70 per cent of wealth until recently. Even if a small portion of that manages to find the financial markets, it has a big impact.