The Ox isn't fast enough to beat Mine That Bird, but once in motion it is hard to stop...
Position: We recently sold our CAF (China Fund) position into proactively predictable news, but remain positive on fundamentals.
CLSA PMI data released yesterday provided continuing confirmation that the stimulus package adopted by Beijing has prodded the Ox into motion, and that the recovery is being felt in ever broadening swaths of industry. At 50.1 the index turned positive for the first time since last September, driving equities higher in Shanghai and across the region as "The Client's" suppliers anticipate increased demand.
For now, this isn't about deltas anymore - this is positive as an absolute. Selling into that news is just what we do. Market prices move on what's going to happen next, not what's in the rear view.
The primary focus of market optimism in Shanghai is the here-and-now, with metal fabricators and refiners trading upwards as the markets anticipate that "big-dig" infrastructure projects in central and western regions will drive demand for the heavy industrials. Meanwhile Taiwan has seen the floodgates open for investment from the mainland as "panda diplomacy" draws the estranged siblings closer, paving the way for joint ventures that can feed consumer demand for technology products by the middle class which, with March retail sales registering at 15%, still represents massive growth prospects.
We remain positive on Chinese recovery in the intermediate term and will look for entry points to go long again. This is not to say that we are jumping on board with the mindlessly bulled-up Mobius mob; we continue to recognize significant potential negative factors like credit quality and asset bubbles that may develop as the recovery kicks into full swing.
Remember that stimulus, by nature, is a kind of emergency procedure -like a shot of adrenaline for a patient whose heart as stopped: the risks and complications may be outweighed by the outcome, but they are still real. To that end, as the recovery cycle matures over the coming months we will seek to manage risk by focusing on sector and industry specific opportunities as well as broad indices.