Chinese equities were boosted on Monday by a report from Goldman Sachs predicting that the MSCI China index could rally as much as 24% by the end of the year.
And it’s not necessarily a crazy bet. The index rebounded by more than 60% between last October and the end of this January. And even with a 24% rally this year, the MSCI China index would be around 30% lower than the February 2021 peak.
Yet, the rising geopolitical tensions with the US are obviously not appetizing for an average investor, on top of the massive loss of investor confidence during the government crackdown that started by end of 2020, and may have not ended just yet, given the news that a star banker in China called Bao Fan has simply… disappeared.
The thing is, the Chinese reopening story, backed by supportive fiscal and monetary policies should help the Chinese economy recover.
To what extent the government help will help equities recover is yet to be seen.
China’s real activity index is now around the pre-Covid levels, more or less matching the Trump-era trade war levels, the equity valuations are sputtering after an initial jump between October and the beginning of this year.
The rapid reopening will certainly boost activity and give a chance for stocks to rebound. But for that to happen, the relationship between the US and China should not get worse, and ideally improve. And that is not a given.
One man’s meat is another man’s poison
Anyway, Goldman Sachs is positive for China. And mining stocks hope they are right because BHP announced a 32% drop in half-year profit as a result of rising costs and soft commodity prices, mostly hit by subdued activity in China. The share price tipped a toe below the 50-DMA in Australia, though losses were limited on hope that the reopening China will finally give a boost to commodity prices.
Chinese reopening is undeniably a good scenario for mining stocks, and the British FTSE 100 which finally stepped above the 8000p mark last week, and holding gains at these levels.
However, rising commodity prices is a scenario of catastrophe for global inflation, and the central bank expectations.
The latest minutes from the Reserve Bank of Australia (RBA) showed that the Australian policymakers considered a 50bp hike at the latest meeting, before agreeing on a 25bp hike.
The latter raised worries that the era of 50bp hikes is not yet a history, and it could happen at the Federal Reserve (Fed) as soon as its March meeting.
Across the Atlantic, the European Central Bank (ECB) is also considering raising the rates by 50bp at the next meeting.
But, for now, China-led bulls fail to gain momentum
For now, the oil bears defy all news of Chinese reopening. The latest Bloomberg news suggested that demand from China will climb by 800’000bpd this year, and take the consumption to an all-time high, of about 16mbpd.
In vain. Yesterday’s rebound in US crude remained capped into the 50-DMA, a touch below the $78pb mark.
Trainwreck in slow motion
Facebook’s Meta announced a plan to roll out paid subscriptions to compensate for the revenue loss from advertisements – which topped $10 billion last year after Apple changed its security settings.
Metaverse, which was the company’s best option for future growth, is also sputtering.
Facebook had a nice start to the year, and jumped impressively after its latest quarterly results, but the early optimism is fading.
Therefore, giving an energy boost and hope to investors may not be a bad idea in the short run. Though, the Twitter experience is a warning that users may not be excited by the news. The only thing that could save Meta Verified from being a similar flop to Twitter Blue is the fact that Meta asks government ID to verify accounts.
But in all cases, in the longer run, it’s a sad turn of things for an innovative technology company. Meta was looking to revolutionize social media by migrating users on to a virtual world. Instead, they will be asking them to pay… for better data – a thing that should be a given.
Meta Verified will cost up to $15 for a mobile subscription. Revenues may jump as Meta has 3.74 billion active users and even a small proportion of them migrating to a verified account could bring cash. Yet revenues may not jump to replace advertising revenue.
Therefore, advertising will remain the major revenue stream for the company in the foreseeable future.
If Facebook wants to stay in the Big Tech race, it must find a way to make its metaverse dream come true.
