Aside from everything AI, there is no market more interesting than China at the moment. A wild ride started at this time last year that’s seen share prices rise 50%.
The game changer was last October when Beijing sent signals that it wanted stock markets to go up. That was combined with an exhaustion in the housing slump and hopes for more stimulus. The latter hasn’t exactly been a bazooka but there has been some slight progress.
More interesting is the stock market and I get the sense that Beijing has seen the scale of capital markets investment in US artificial intelligence and is jealous. The problem with Chinese capitalism is really the opposite of a problem, at least in the textbook. What’s happened is that Chinese companies have competed too hard. It’s been great for consumers but it’s led to overcapacity and razor thin margins in many industries. The best recent example is in autos where Chinese companies have been cranking out cars at impossibly thin margins.
That may change, and it would be a gamechanger for corporate earnings. Earlier this month, President Xi published in Qiushi magazine and said there was a “focus on rectifying disorderly low-price competition among enterprises.”
That’s coded language for ‘stop the price wars’ and the market has slowly picked up on it.
In China, it’s called “involution” (or neijuan) and there is now a concerted effort to stem it, something that came from a set of meetings in July. It’s no surprise that the Shanghai Composite began a breakout then.
Shanghai Composite daily
The bigger message from China can be boiled down to: We want companies to make money again and our stock markets to go up.
At some point, Beijing may crack down again but in the meantime, why fight it?