July twenty-second, two thousand twenty-five
《13 Takes on China’s Market》
“Thirteen Takes on China’s Market”
Yesterday I wrote a few Notes articles about the domestic market. After several rounds of edits, I still couldn’t publish them. The content may really need more thought; writing about this market calls for greater caution and should be taken seriously.
One fundamental view is that some renminbi assets are back within our range of opportunities.
Chart: The price we had been watching in the Weekend edition broke out last week
As for our positions in the domestic market, The last time we discussed them overall was in October last year:
Chart: We liquidated all our China-market positions after the market opened on the 8th
The image above is our last comment on our overall positions in the China market, from October last year,
On the last day of the holiday, we issued a notice to liquidate...
In fact, we made two rounds of trades in the China market last year, The first round ran from the Lunar New Year through May，
This round was a whole-market trade：
The yellow circle in the chart below marks the price level before the Lunar New Year, when market pricing was at its most pessimistic since 21:
Chart: Shanghai Composite Index
After the Lunar New Year, once some specific structural directions emerged, we began building allocations and accumulating positions, focusing mainly on real estate, technology innovation, and non-bank financials (securities and insurance), alongside the Hang Seng Index. We chose to participate deeply in this major effort to resolve debt and clear assets:
The second round of trading ran from June to October:
The positions we held became profitable several months later, and we had fully exited by October.
Chart: From one yellow circle to another
Review complete; back to today.
In fact, the methods for investing in bottoms and betting on growth are completely different. If last year’s trades were about bottoming out and about counterparties with pricing power having no choice, the new round of trading that is about to begin this year will test our bottom-up capabilities much more.Bottoms involve concentrated Beta, while growth involves more dispersed Alpha, this is where readers need to work with us...
Chart: Two fundamental market regimes and trading behaviors, and the necessity of acting as a counterparty
(Published on the Deep Trading Planet,https://www.meridianresearch.app/home?product=vega-trading）
The process of a market forming a bottom is one in which a group of people willing to take over assets being cleared gradually buy them with real money, during this period, our positioning aligns with the national interest. Where capital needs to step in, we will act, and we will clearly rally behind the direction the country needs. Those who follow courageously will naturally reap the rewards of victory.
However, after moving out of the bottom, those who keep loudly championing a particular direction often become enemies of the market...
More likely, their intentions are not good..
The format of Notes and compliance considerations mean that we cannot publicly get involved in overly granular details, especially since the total capital that the note’s readership could draw in is not small.. The boundaries of what we write need to be taken into account; please understand. We may only be able to touch briefly on the topics covered, and readers will need to think, add to, and refine the rest themselves.What we write may only be able to touch on things briefly; readers will need to think through, supplement, and refine more of it themselves.
...
For the past two years, the market has been eagerly anticipating a “major stimulus package in China,” almost to the point of breathlessness. Recently, the narratives of curbing involution and clearing excess capacity have attracted a new wave of attention.For us, news and headlines are not reasons to place a bet; movements in the bond market are the only signal for interpreting growth and fiscal intentions.
After Tibet launched its giant hydropower project, government bond futures rose in response. The signal deserves particular attention...
The gain looks small against the backdrop of recent years, but it is worth pondering.
Broad-based, flood-the-system stimulus is impossible under the decision-making framework; that is a red line, but ongoing spending is still needed:
Chart: All remaining targets must be completed before year-end
Under a decision-making framework that sets priorities and focuses on key points, total investment needs to make up for the portion of growth that consumption and net exports cannot deliver, as net exports are about to slow and consumption growth still needs time, manufacturing and infrastructure investment must provide enough additional, steady funding to fill the gap without creating excess capacity on the supply side...
Steady and sustained...
Put plainly, This means this portion can only serve as a core position. When positive news sparks sentiment-driven trading, one can choose to take profits at higher levels; as the market narrative fades, continue quietly accumulating positions and wait for the next opportunity to sell.It’s no different from running a business.
Chart: A short note previously published by 港龙 in month 4
Chart: Infrastructure 50
The causes are usually gradual, while the outcomes are abrupt; this is especially evident in the mainland market.
Markets tend to act as a force that preserves the status quo; in other words, the status quo is a general rule, while “friction” manifests as the inertia of existing patterns.When traders have become utterly convinced that the market’s status quo will persist, major changes usually begin.The essence of the market is the positive and negative feedback of two opposing forces: rising prices continually accumulate the forces that will drive them down, while the rise itself blinds traders to the reasons prices could fall.
When the market eventually reaches a critical state, a small event can cause the accumulated factors to erupt instantly and produce a major shift. Many people are ruined by chance events, while many others rely on an inevitable chance event to take their capital to a higher level.
In the first half of 25, real GDP grew year over year by 5.3%,The resilience of exports has effectively created ample room for a potential slowdown in the second half, but the underlying pattern remains clear and forms our 13 basic views on the China market. As a guide, these 13 points are also the core of our positioning for the next 6-12 months,
We’ll develop each point in Notes to come,
We’ll explain them gradually, so there’s no need to rush; we’ll stay ahead of prices..for a long time:
1) sustained export growth is bound to be insufficient to complete our transition in planning from the Fourteenth Five-Year Plan to the Fifteenth Five-Year Plan the planned transition
2) the shift from export- and investment-led growth to growth led by domestic demand and productivity is the inevitable path everyone knows must be taken, the correct long-term direction is clear; what is uncertain is the short-term policy trade-off
3) expected an export slowdown is imminent
4）indiscriminate stimulus is impossible, without the slightest room for illusion, there will only be strategic long-term decisions, not cyclical easing
5) growth numerical targets must and will certainly be achieved, before the transition is complete some things must first step in and provide a backstop
6）Manufacturing investment has little to do with economic demand, anchored to preventing a real-estate downturn from pushing economic growth below its target
7) policies already used ten years ago (housing reform, supply-side reform)may be ill-timed and difficult to replicate, and forced production cuts would worsen labor-market weakness and pressure credit quality...A fundamental solution to overcapacity requires changes to the fiscal system and incentive mechanisms. On this point, one can refer to Zhang Wuchang’s analysis of the background to the previous reform of incentive mechanisms. There is no letting go; there are only equivalent exchanges.
8）Domestic demand is fundamentally tied to employment, not asset prices，Many people promote the idea that asset prices determine the level of domestic demand. You need to form your own independent judgment, because only the voices of this group can be heard, This is the fundamental difference behind our disagreement with the market’s view. Productivity is fundamentally linked to entrepreneurship, while domestic demand and productivity—the two converge at appreciation of the domestic currency
9) Renminbi appreciation will promote economic rebalancing by raising household income as a share of GDP
10）Different industries’employment-pull effects are completely different
11) From appreciation to employment to consumption, the process takes time, Don’t chase highs during a deflationary cycle, this is a dynamic and dangerous rebalancing process.Appreciation of the domestic currency will weaken manufacturers’ competitiveness, and these are precisely the industries that are currently highly employment-intensive and driving economic activity. Manufacturing and domestic demand are not two separate features of China’s economy; they are two sides of the same coin
12) The current expectation is that a new window will first open for people to find employment or pursue entrepreneurship, then appreciation of the domestic currency will gradually rebalance the weight of industry and households, exports and consumption, and asset prices and residents’ actual income, Throughout this process, the old economy will continue to provide periodic support to the bottom
13）Maximizing GDP or maximizing public well-being are two different things, Whether a society chooses to optimize the average outcome or the median outcome may sound similar, but they are fundamentally different
...
That’s all for now.
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Wishing you all the best.
2025.07.22
Note: All content in this text is for reference only, does not constitute investment advice, and is not a basis for any laws, regulations, or regulatory policies. Investors should not use this information as a basis for decisions or rely on it.