Incremental reasons to try a contrarian long in China

The Market Ear Picture

Time for this dog to have its day?

Everybody agrees that Chinese fundamentals are looking poor (recall our latest note here). There are however a few things that would support that now is the time to put on a contraian trade. First, very few are mentioning "speculation" these days. Regular readers of TME are familiar with "speculation" being a massive driver of Chinese equities. Lately, "they" have made a notable comeback. Stamp tax one factor, but maybe not the whole story...

Source: Refinitiv


Evaporated China growth

Investor's expectations of China growth is back to Covid lows. So much for the great reopening...but is the crowd too bearish here?

Source: BofA


China hate is huge

Negative articles on China have skyrocketed.

Source: Sentimentrader/Bloomberg/13D


China and the commodity "connection"

Can we have commodities moving higher (sure a lot of oil in the latest rise) and China moving lower? The gap between the CSI 300 and the BCOM is getting rather wide.

Source: Refinitiv


Yuan holding

We have seen the Yuan weaken for months, but note it is actually unchanged over the past month. CNH vs CSI 300.

Source: Refinitiv


Play it via options

One way to play a possible catch up in Chinese equities is via FXI call spreads. Chart shows the FXI October 28/31 call spread, offering around 5.5x max payout.

Source: Refinitiv


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