Monday, January 5, 2015

Shanghai on Steroids

The strength in the Chinese stock market has totally surprised me.  I didn't expect that the ticking time bomb would suddenly be the strongest market in the world.  And the A-shares at that, not even the H-shares can keep up.  Shanghai Composite hit a 5 year high today, up 3.5% today at 3350.  Chinese stocks were hated, I admit to being one of the haters, but the relative weakness was so pervasive that I thought it would eventually lead to a China crash.  It happened the other way, into an upside crash.

The PBOC starting to lower interest rates, and overflowing yuan liquidity, the money had to go somewhere, and it has started to flow out of real estate into stocks.  China has a larger money supply than the US.  They have printed way too much money for their expansion, and it can really push up an asset that suddenly finds demand.  Local Chinese investors are now back into the stock market game, and this is probably the last move higher they will see for a while.  But I am not going to short it, just watching it for now.  There will be opportunity somewhere over the next few months, markets are really starting to move more aggressively than we've seen for quite some time.  I favor more upside in risk assets in the 1st quarter, and S&P at 2040 is an enticing entry point for another grind higher.

Looking to buy dips today, the pullback is close to an end.

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