I tend to think that China is underestimated, both in the short and long term.

There is a narrative out there that China is ‘struggling’ and that stimulus is long overdue but the facts don’t exactly bear that out. Chinese GDP is still growing at a nearly 5% pace, which is the envy of the world. In addition, it’s export sector continues to boom with a 6.7% y/y reported earlier this week. Yes, that’s below the +8.5% rise expected but it’s sill strong growth and its growing dominance in EVs could lead to a long runway for foreign sales.

The re-framing of exactly how well China is doing may explain why Beijing has been slow to unlock stimulus. There could also be sensitivity to global inflation and they may not wish to contribute to that.

A big part of the deleveraging in China has been in real estate and there is a clear policy to take the air out of that sector to ensure longer-term affordability. That’s a social government policy and unlikely to change. The problem is that Chinese savers have few places to turn as real estate was once the safe store of money, and Chinese equities have been a graveyard. That’s siphoned money into gold and evidently into Chinese bonds, despite the pitiful current yields.

What’s changed now? China’s economy continues to slow and international pressure is mounting to improve local consumption and global inflation is less of a problem. Will it happen?

I think the chart of the MCHI ETF shows the ebb and flow. The market got very excited in late September, then again in November and earlier this week but every high is lower than the previous one. That’s an ominous sign that any policy announcements this year will be a pistol rather than a bazooka.