Hello everyone, and welcome back to our weekly positioning watch.

What a week it has been in global macro once again, with Chinese equities collapsing earlier this week after the Chinese stimulus frenzy fizzled out. However, we are now starting to hear that Chinese authorities are taking matters seriously, planning a new round of stimulus on the 12th of October. There seems to be a significant consensus on the street that the package could be around 2.5-3 trillion CNY worth of stimulus—or about 2% of nominal Chinese GDP—which would be a substantial package if it comes through. The China rally has likely been one of the most disliked rallies in history, and we may not be done yet.

The question now is whether the proposed package will actually bolster financial stability and markets, especially now that consensus is forming and expectations are fairly high. Once again, we find ourselves in a scenario where the market dictates policy.

While stories have circulated about how Chinese equities were heavily bought based on hedge fund prime books from Goldman and other large banks, the data we have on aggregate macro hedge fund/CTA performance suggests otherwise. Returns have been rather negative over the past week or two, indicating that hedge funds may have been caught wrong-footed in the China narrative.

Chart of the Week: Some hedge funds lost significantly on this China story