The HSCEI has rallied 26% this month.
Is it worth chasing? Well for the technical minded, HSCEI/S&P 500 has completely unwound all the outperformance it achieved from 2000 to 2010. Even with the move this month, its has barely begun to catch up.
One unusual feature of this rally is that it has not been associated with any change in interest rates. The Shanghai Interbank 12m rate has normally risen with markets as expectations of growth and inflation return. Not this time.
What is more common with a rallying HSCEI is a strengthening Chinese Yuan. The recent rally has pushed it to the highest level since 2023. This is bullish and inflationary.
The most bullish thing I could find for Chinese equities is that the authorities are looking to get housing construction back on track. Activity has collapsed back to 2008 levels, which I consider more normal.
Back in 2015, I was short China, when government stimulus sent the market higher before it crashed.
One good lead indicator that the rally in 2015 was unsustainable was that the dividend futures were moving in the opposite direction to the market.
