China
In this Q4 Strategy Outlook, we discuss where we stand on our recession call, the outlook for stocks and bonds in various scenarios, why investors are misunderstanding the impact of AI on corporate profits, whether the US dollar has entered a structural downtrend, our perspective on the yen, gold and other commodities, and much more.
The CNY/USD has room to appreciate both cyclically and structurally, while nominal yields on China’s long-duration government bonds are set to fall. This combination supports Chinese equities.
We remain cyclically short Brent but are tightening the stop loss to $73/bbl to guard against a geopolitics-driven upside break.
This week our screeners explore offshore Chinese internet stocks, US Healthcare equities, and sectoral opportunities in the Canadian bourse.
Rising Russia-NATO risks, tactical oil/gold trades, tougher sanctions on Russia (maybe China), China stimulus with ~5% growth target, and US checks on Trump’s ambitions will define Q4.
Our high-frequency indicators show China’s growth momentum weakening further in September, increasing the likelihood of new stimulus in the weeks ahead. We remain tactically cautious on Chinese equities, but strategically constructive on offshore Chinese shares.
China’s policy-driven constraints prevent the “destruction” part of the creative destruction process. Instead, they entrench overcapacity, deflation, and poor profitability. We are reluctant to chase the rally in Chinese stocks in absolute terms.
