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More thoughts on my conviction of 2024 being the year Chinese equities rebound
There are many signs that show that it's time to buy the dip on Chinese equities. Bloomberg even had an indicator with 100% success rate that said to buy Chinese equities. I can show you so many images showing correlations between when to buy Chinese equities and the returns that have came with it previously.

As an overview, the pessimism on Chinese equities is immense. The main thesis behind the pessimism is the possibility that the country will invade Taiwan and the West will impose Russia-style sanctions on the country. If people were fearful of war, why do they own $TSM $AAPL etc.? The Magnificent 7 would not be as successful as they are today without both China and Taiwan. Taiwan for chips. China for manufacturing and sales. Those fearful of war would not hide in safety among US stocks that are highly dependent on China for manufacturing & sales.

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Photo by Jerry Wang on Unsplash

The CCP’s intervention in the markets has been misunderstood by the Western mind. This is because Westerners can’t comprehend the level of government intervention that the CCP conducts in the private markets. That’s why they’d misinterpret their moves as deliberate sabotage of capitalism instead of stopping a contagion risk from getting worse. The Ant IPO is a famous example of this as Westerners thought the CCP was sabotaging Alibaba and Jack Ma's wealth after Ma said some anti-CCP statements. In reality, Ant Group had an obscure and complex corporate structure, violated regulations by acting like a bank without undergoing banking regulations, and ran its operations with poor lending practices. Within its 674 pages prospectus, there's a lack of clarity on its balance sheet and essential analyses of capital ratios.

From this and other market interventions, the CCP does not look to have a mission of killing the private sector. it is instead dedicating their power in taming the excesses of capitalism and ensuring that wealth inequality doesn’t spread to extreme levels. If it wanted to kill the private sector, it would nationalize everything in the private sector, and it hasn’t.

As for the concerns on China falling into the middle income trap, we are seeing evidence that it’s moving up, not stagnating or declining, on the economic value chain. It went from basic manufacturing to producing smartphones to now cars. Elon Musk recently complained in the $TSLA earnings call of Chinese automakers eventually outcompeting Tesla in both China and Europe and in the future, the US. Sure, the CCP has invested so much in the country’s aviation and auto industries to build its own military tech and pursue their goals of invading Taiwan. When removing Taiwan issue, we can see that China can escape the middle income trap. And like most high income countries, China is now outsourcing the lower value manufacturing to poorer countries, usually those in Latin America and Africa.

With the reshoring boom, many see it as a trend that hurts China. Little do people realize that Chinese companies have fueled a significant portion of manufacturing in these nearshoring and even reshoring nations. The NYT notes that Mexico, arguably the biggest nearshoring winner, saw huge investment and business from Chinese exporters as many of them seek to preserve their U.S. sales through setting up shop in the country. The trade deals crafted under NAFTA and USMCA have helped Chinese companies skirt regulations to sell products in the US. It wouldn't surprise me if Chinese automakers start setting up factories in Mexico and use it as a way to start flooding the US auto market with their EVs.

For now, I'm having a great feeling that 2024 will be the year Chinese equities rebound. The fears of China descending into a Great Depression will go away once people realize that Chinese households have better balance sheets than the typical Western household. Collapsing real estate prices in China will help remove the excesses from that sector and inspire investors to invest more in technology and other productive areas of the Chinese economy.
www.nytimes.com
Why Chinese Companies Are Investing Billions in Mexico
Alarmed by shipping chaos and geopolitical fractures, exporters from China are setting up factories in Mexico to preserve their sales to the United States.

Eric Messenger's avatar
They’ve been so undervalued for years it seems. I know eventually price will catch up with value. I’ve been thinking about adding my top 3-5 Chinese stocks again myself.
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