4,016! ;
That's what the Shanghai blasted up to at the open, though we pulled back to 3,957 by the close as some people decided that a 100{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6} run in 6 months called for a little profit-taking. ;Don't worry, it's all part of the "new normal" for equities and nothing bad can possibly happen – it's just that, 6 months ago, traders didn't know value when they saw it but NOW we are much smarter and these prices are here to stay, right? ;According to UBS: ;
With no significant change in China's macro or corporate fundamentals, the visible rebound in China's A-share market since November appears to have been largely liquidity driven. We think this, in turn, may have been fuelled by a number of factors including:
- ;New funds flowing into the stock market from household saving, real estate, commodities and trust markets;
- ;Banks' bridge loans provided to investors who lost access to other high-yield shadow banking products as the result of tighter regulation;
- ;The PBC's easing of liquidity conditions via a variety of "targeted easing" tools (e.g. MSL, PSL, etc.);
- ;The official launch of Mutual Market Access (MMA) between the Hong Kong and Shanghai exchanges;
- ;Long-term expectations for SOE reform and A-shares entering the MSCI index next June;
- ;Increased use of leverage by retail investors via margin trading; and
- ;Market sentiment being boosted by expectations for further policy easing.
This has been a "New Deal" for Chinese stocks as the Government attempts to paper over a slowing economy by giving the people record market highs to "prove" how well things are going. ;Now, BNP is out with a note calling China’s equity bubble “a microcosm for the overall economy: unsustainable growth in leverage masking ever-deteriorating fundamentals and increasing future downside risks.”
We mentioned shorting FXI (China ETF) in yesterday's post but we couldn't give a specific option play because we were waiting for that 4,000 mark in Shanghai. ;It turns out $50 is the magic number on FXI and we like that line for a short and we like the May…
SOURCE: Phil’s Stock World – Read entire story here.
