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Raychel Sanner 0Pswkddfxii Unsplash
03.05.2022
China
China’s stock exchanges remain closed for Labour Day but optimists point to a shift in rhetoric from Beijing as reason to hope policy stimulus can prompt a bounce when they re-open.
The majority of Qi’s China-related models are not in macro regimes currently. Some, like FXI (large cap China ETF) & KWEB (China internet ETF) were in regime but macro lost its explanatory power in March – presumably as politics (strict lockdowns) assumed greater importance.

Others, like Shanghai Comp & Alibaba are either close to our 65% threshold or have model confidence trending higher.

The broader Emerging Market equity ETF EEM (where China is a 30% weight) is in regime & the current patterns show stronger China growth & a weaker Dollar / stronger Yuan both feature as top 10 drivers.

But while low model confidence means Qi valuation signals comes with a health warning, that doesn’t stop us from putting the recent moves in some critical factors into some historical context.
China Eco GrowthUsdcnh
On Now-Casting, weak PMI data has reduced tracking Chinese GDP growth by around 3% (from 7.4% YoY to 4.3% YoY). In Qi z-score terms, this has taken growth 3.5 standard deviations below trend. Levels only surpassed during the initial Covid lockdowns & the Yuan devaluation episode.

Talking of 2015-16, the rally in USDCNH has now taken the cross 4 standard deviations above trend. Levels consistent with the Yuan devaluation. Not new news by any stretch, but essential context. Policy stimulus can only help but it is worth noting the starting point.
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