Something for Your Espresso – Is the China Story Fading?
Morning from Copenhagen.
The China story is fading a little this morning, with the Hang Seng down slightly. However, the China frenzy still continues in the retail space, with fund flows going absolutely crazy—almost a billion USD worth of inflows into Chinese equity ETFs yesterday alone. From a positioning perspective, it’s never a good sign that flows are increasing when momentum is starting to dwindle. But at this point, the rally is not about fundamentals anymore; rather, it’s about how long markets can hold prices this high. Fundamentals are still looking weak despite congestion ticking higher, though it’s tricky to say whether this is due to the holiday season or not.
Chart 1: Chinese fund flows are going bananas.
While Chinese equity sentiment is still roaring, it coincides with both 1) dwindling momentum in Chinese equities and 2) a net decrease in Chinese liquidity, which makes us wonder whether the China story is slowly but surely fading. USD liquidity is likely a more interesting macro point at current junctures, with SOFR continuing to spike above the Fed’s upper bound.
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