The Hang Seng China Enterprises Index is up 30% over the past 2 weeks while the Hang Seng Index is up 27%. I’ve mentioned previously that the longevity of the Chinese rally hinges on the Chinese government’s monetary and fiscal policies, such as interest rate cuts and the People’s Bank of China’s (PBOC) liquidity support. Today I’ll go more in depth into the skeptical case regarding the Chinese rally and how the current structure of the Chinese economy could dampen the hopes of a prolonged Chinese bull market.
1. The Recent Surge in Chinese Stocks as A Temporary Phenomenon
The recent rapid rise in Chinese stocks can be attributed to a combination of a deeply oversold market and a new stimulus cycle. Market conditions created a “melt-up” scenario, where a positive catalyst where a stimulus met an oversold environment, driving rapid price increases.
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