Who Gets Rich in China's Market Rally?

7 окт.

On September 24th, China announced an unprecedented fiscal stimulus, aiming to rescue its ailing economy. As soon as the news got out, China’s stock market staged a huge rally. The Shanghai Stock Exchange (SSE) index moved from below 2,800 on September 24th to close at 3,336.5 on September 30th, up 19% in a week. One-month return for the SSE and notable Chinese stocks are listed here:
• SSE: +17.5%
• Yonghui Supermarkets: +59.9%
• JD: +51.3%
• BABA: +32.5%
• BIDU: +25.5%

China's stock market is closed on October 1-7 to observe the National Day holiday. Social media is floating a lot of fairytales about who made a big fortune in the last week of September. Here are two of the stories:

The first one is about MINISO, a boutique Chinese department store chain with over 5,000 stores worldwide. It is listed on the NYSE under the stock symbol MNSO. On September 23rd, MINISO announced that it would acquire 2.67 billion shares of troubled supermarket chain Yonghui Supermarkets (601933.SH), at RMB 2.25 per share.

The next day, China announced the stimulus package, and all stock prices shot up. On September 30th, Yonghui closed at RMB 3.63, up 1.38 yuan or 61.3% from a week ago. With the acquisition of 2.67 billion shares, MINISO stands to make a profit of RMB 3.68 billion, equivalent to US$200 million (at USD/RMB exchange rate of 7.09).

MINISO could sit on the nice profit for three months and do nothing. It does not have to remit payment for the acquisition until Q1 2025. Is this just good luck or what?

The second story is about Michael Burry of Scion Capital, a Wall Street outcast made famous by Michael Lewis’ bestseller, the Big Short, and the hit movie with the same title, with Christian Bale portraying Burry. Recent SEC filing shows that as of the end of Q2 2024, Scion’s largest stock holding is BABA, accounting for 22% of its fund. JD and BIDU are its fourth and fifth holding, respectively. Each is for about a 12.5% share.

For an unknown reason, the Big Short turned into a Big Long with nearly half of its investment concentrating on Chinese stocks. With a timing precision, Burry scooped them up cheap just before they popped. Is this superb stock picking skill, or just luck?

Would the China rally continue when the market resumes trading on Tuesday? Goldman Sachs just released a research note, saying: Unless China does QE now, the current market rally will crash and burn, and the economy will be a crater. If China does do QE, oil will soar, and gold and bitcoin will be orders of magnitude higher.

While this is presented as two alternative paths, there is only one way to go, in all practical purpose. After going all out last month with unprecedented fiscal stimulus, the Chinese government could not afford to see the stock market and the housing market to tank again. It really needs to finish the job by injecting financial stimulus into the economy. Now that the market sensation has already turned positive, government spending would trigger consumer spending as well as investment from the private sector. Such a multiplier effect could lift the Chinese economy higher.

Happy Trading!