Quick China stimulus update
I formally issue an errata, renaming the prior research piece to: Fed goes big and China goes home.
In our prior research note, we established that China is experiencing a consumer-driven residential property balance sheet recession.
Fed and China go big or go home
What problem does China have, and what will be the impact of its stimulus efforts?
Here is the conclusion we reached:
China’s National Development and Reform Commission managed to unveil pretty much no details on the make of their stimulus aside from some 100bn yuan ($15bn) in additional spending for 2025, which pales relative to the pace of debt repayments from Chinese households and corporates:
China is currently attempting to cut a tree using a hammer. Monetary easing is not the appropriate toolset, and Chinese fiscal spending must step in. For now, given the insufficient outlook for fiscal spending, I am taking profit on half of my Chinese and HK equities along with the rest of the market. I won’t go to the point of shorting local equities as we do not know if and when Fiscal spending announcements will be made.
I formally issue an errata, renaming the prior research piece to: Fed goes big and China goes home.
This is a positive outcome for U.S. equities in the medium term, as liquidity won’t exit the U.S. and park in Chinese risk assets. We will need to monitor how this crisis evolves in China and signs that weakness is leaking out of the second-largest economy and into other markets (a future note will cover this).