A Massive RALLY underway in China Market. Should you INVEST? | Akshat Shrivastava

Summary

This video explores China's recent stock market liberalization and its global impact. With a $100 billion bond purchase program, China is injecting liquidity into its markets, potentially boosting asset prices. The presenter discusses China's shift from real estate to stocks due to a struggling property market and the influence of US quantitative easing. He advises investors to diversify, considering China, and to hedge against inflation, which may rise due to China's easing policy.

Takeaways

• 📈 China is liberalizing its stock market with a $100 billion bond purchase program to increase liquidity and potentially boost stock prices.
• 🌐 This move is expected to have a global impact, affecting investors in India, the US, and across the world.
• 🏦 The shift in China's focus from real estate to stock markets is significant, as the real estate market has corrected post-COVID, reducing its appeal to investors.
• 🌍 The Hang Seng Index surged by 4% in a single day, indicating a major market movement that caught global attention.
• 💡 The video suggests that investors like Michael Burry are reallocating their portfolios to Chinese stocks, signaling a potential trend.
• 🔄 China's economic strategy includes strengthening its forex reserves and increasing physical gold holdings to support its quantitative easing policy.
• 🚫 China has been cautious about US influence through money printing and has taken steps to counterbalance US economic might.
• 💼 The speaker has been managing a hedge fund and shares practical insights from his travels and meetings with international investors.
• 📊 The video outlines a two-fold Chinese plan: increasing forex reserves and physical gold purchases to bolster the economy's strength.
• 💹 The potential for growth in the Chinese stock market is highlighted, with the speaker allocating 10% of his portfolio to China as a long-term bet.
• ⚠️ The video warns of the inflationary consequences of quantitative easing, advising investors to hedge their portfolios against inflation.

Q & A

Why is China liberalizing its stock market?

China is liberalizing its stock market to counter the growing power of the US and to provide an investment option for its rich citizens after the real estate market corrected.

What is the significance of the Hang Seng Index's 4% rise in a single day?

The Hang Seng Index's 4% rise indicates a significant market movement, which is attributed to China's new quantitative easing policy aimed at liberalizing its stock markets.

Why are investors like Michael Burry pivoting their portfolios to Chinese stocks?

Investors like Michael Burry might be pivoting to Chinese stocks due to the potential for growth as China adopts a new quantitative easing policy and opens up its stock market.

What is the new quantitative easing policy that China is adopting?

China has instituted a $100 billion bond purchase program to add liquidity to the market, which is similar to the quantitative easing policies adopted by the US.

Why is China's focus shifting from real estate to stock markets?

China's focus is shifting from real estate to stock markets because the real estate market has corrected post-COVID, and the government is looking to provide alternative investment options.

How will China's new policy impact global investors?

China's new policy will likely increase liquidity and potentially push up stock prices, which could have a positive impact on global investors, especially those in India and the US.

What percentage of the Chinese economy is dependent on real estate?

Almost 30% of the Chinese economy is dependent on real estate.

Why did China initially oppose the US's quantitative easing policy?

China initially opposed the US's quantitative easing policy because it did not want to lose control over its companies and accumulate external debt from the influx of US-printed money.

How has China been building its balance sheet to support its own quantitative easing?

China has been building its balance sheet by rapidly increasing its forex reserves and buying physical gold to show economic strength and support its new quantitative easing policy.

What is the potential impact of China's quantitative easing on inflation globally?

China's quantitative easing could lead to increased inflation globally, similar to the impact of the US's policy, affecting countries like India more significantly.

What steps is the speaker taking in response to China's new policy?

The speaker is building positions in the Chinese market, diverting roughly 10% of his portfolio to China, and advocating for diversity in investment.

Outlines

00:00

🌐 Understanding China's Stock Market Liberalization

The speaker introduces the topic of China's stock market liberalization and its global impact. They discuss the recent surge in the Hang Seng Index and question why investors like Michael Burry are shifting to Chinese stocks. The speaker shares their practical experience from traveling and meeting investors worldwide, particularly Chinese investors. They outline three key topics for discussion: China's new quantitative easing policy, the shift from real estate to stock markets in China, and the impact of these changes on global investors, especially in India and the US. The speaker also encourages viewers to subscribe for more macroeconomic content.

05:00

📈 China's Economic Shift and Quantitative Easing

The speaker delves into China's economic strategy, explaining the country's adoption of a $100 billion bond purchase program to increase liquidity in the market. They draw parallels with the US's approach post-2008 financial crisis, contrasting China's initial opposition to money printing with its current need for quantitative easing. The speaker highlights China's efforts to build its forex reserves and gold holdings to support its new policy. They also discuss the challenges faced by the Chinese real estate market and how this has prompted wealthy Chinese investors to look for opportunities abroad, leading to a potential opening of the Chinese stock market to attract domestic investment.

10:01

🌉 Global Implications and Investment Strategies

The speaker explores the global implications of China's economic policies, emphasizing how quantitative easing can affect asset prices worldwide. They suggest that increased liquidity in China could lead to rising asset values in other countries, including India and the US. The speaker shares their personal investment strategy, allocating a portion of their portfolio to Chinese markets in anticipation of growth. They also discuss the potential for Southeast Asian markets to attract Chinese investment and the importance of diversification in a multipolar world. The speaker warns of the inflationary risks associated with quantitative easing and advises viewers on the need to hedge their portfolios against inflation, offering to share more insights through their courses and YouTube community.

Keywords

💡Quantitative Easing

Quantitative easing is a monetary policy in which a central bank purchases government securities or other securities from the market to increase the money supply and encourage lending and investment. In the video, it is mentioned that China is adopting a quantitative easing policy by instituting a $100 billion bond purchase program, which is aimed at liberalizing its stock markets and increasing liquidity. This policy is seen as a way to counter the growing power of the US and to manage the internal debt that comes from money printing.

💡Hang Seng Index

The Hang Seng Index is a stock market index that comprises the largest companies listed on the Stock Exchange of Hong Kong. It is used in the video to illustrate the significant movement in the Chinese stock market, highlighting a single-day rise of 4%. This is used to set the context for discussing the liberalization of China's stock market and its potential impact on global investors.

💡Liquidity

Liquidity in financial markets refers to the ease with which an asset can be bought or sold without affecting its price. The video discusses how China's bond purchase program is intended to add more liquidity to the Chinese market, which in turn is expected to push stock prices and other asset classes higher, similar to what happened in the US after the 2008 financial crisis.

💡Investment Portfolio

An investment portfolio is a collection of financial assets such as stocks, bonds, and cash equivalents held by an investor. The video mentions how investors like Mr. Michael Burry are pivoting their portfolios to include Chinese stocks, indicating a strategic shift in response to China's economic policies and market liberalization.

💡Real Estate

Real estate refers to land along with anything permanently affixed to the land, such as buildings and other structures. The video discusses the shift of focus from real estate to stock markets in China, as the real estate market has corrected and is no longer a viable investment option for rich investors, prompting them to look towards the stock market.

💡Forex Reserve

Foreign exchange reserves are, in a strict sense, only the foreign currency deposits held by central banks and monetary authorities. The video explains that China has been rapidly increasing its forex reserves as part of its strategy to counterbalance the effects of quantitative easing and to strengthen its economic position.

💡Physical Gold

Physical gold refers to gold in its tangible form, such as gold bars or coins. The video highlights China's accelerated purchase of physical gold as a way to build its balance sheet and strengthen its economy, which is crucial for supporting the country's move towards quantitative easing.

💡Economic Might

Economic might refers to the economic strength and influence of a country. The video discusses how China is trying to counterbalance the US's economic might by adopting its own quantitative easing policy and strengthening its balance sheet, aiming to reduce reliance on the US dollar and increase its global economic influence.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. The video suggests that the US's quantitative easing has led to inflation globally, and China's policy may further exacerbate this issue. It emphasizes the importance for investors to understand and hedge against inflation in their portfolios.

💡Diversification

Diversification is the practice of spreading investment risk by investing in a variety of assets. The video encourages investors to diversify their portfolios, including a bet on the Chinese market, to mitigate risk and potentially benefit from the growth opportunities presented by China's economic policies.

💡Hedge Fund

A hedge fund is an aggressively managed portfolio of investments that use various strategies to earn active returns for their investors. The video's presenter mentions managing a hedge fund and applying the practical knowledge gained from that experience to inform his views on China's stock market liberalization and its implications for global investors.

Highlights

China is liberalizing its stock market, which could have a massive global impact.

Hang Seng Index surged by 4% in a single day, indicating significant market movement.

Investors like Michael Burry are shifting their portfolios to Chinese stocks.

The presenter has been traveling and meeting investors to understand their international investment strategies.

China has adopted a new quantitative easing policy to liberalize its stock markets.

China's focus is shifting from real estate to stock markets.

The presenter will discuss how these changes impact Indian and US stock market portfolios.

China has instituted a $100 billion bond purchase program to increase liquidity.

China was previously opposed to US's quantitative easing policy post-2008.

China is building its forex reserve and gold reserves to support its own money printing system.

China's economy is heavily dependent on real estate, which has been correcting since 2021.

Chinese investors are looking to diversify their investments outside of real estate.

The Chinese government is opening up its stock market to provide investment options for its citizens.

The presenter is building positions in the Chinese market as a long-term investment strategy.

Southeast Asian countries are opening up their markets to attract Chinese investment.

The world is becoming multipolar, and investors need to stay diversified.

Quantitative easing could lead to increased inflation, and investors should consider how to hedge against it.

Transcripts

Hi, everyone.

On this video, I'm going to help you understand why China is liberalizing its

stock market and what massive impact it is going to create for investors in

India, US, all across the globe.

Recently, you might be hearing the news that Hang seng Index, which is one of the

Chinese index, it went up in a single day by 4%.

Now, this is a very big move on index. Why did this happen?

Why are some investors, like Mr. Michael Burry, are pivoting their

portfolio to Chinese stocks?

Can you also buy China and should you also buy Chinese market?

What are the risk and reward equation there?

Should you be doing it? Should you not be doing it?

I'll give you a very practical perspective.

Now, why practical perspective?

Because for the last eight months, I have been traveling to different

parts of the world. I've spent enough time in Malaysia.

I've spent enough time in Dubai meeting a lot of investors, understanding their

viewpoint on what type of international positions they are building and why.

So I happen to meet a lot of Chinese investors.

I'll explain their viewpoint also along this video.

So three precise topics that we are going to cover.

Number one, I'm going to help you understand what is the new quantitative

easing policy that China is adopting to liberalize its stock markets and why.

Second, and more importantly, why is it that their focus is shifting from real

estate to stock markets right now?

And third and finally, how all this is going to impact your India stock market

portfolio and US stock market portfolio, and what are some macro points

that you need to understand.

Just a very quick request that in case you enjoy these type of macro videos, you

could consider subscribing to this channel.

I teach a lot of macroeconomics, finance, investing, which is

very practically driven.

I'm currently managing my hedge fund, so whatever learning I get through by

managing that bit of money, I bring it through my YouTube channel

for everyone's benefit. Let's start.

First and foremost, let's understand the key move that China has made.

In very simple words, what they have done is that they have instituted a

$100 billion bond purchase program.

In simple words, they are adding more liquidity.

Liquidity means that more money will be brought into the Chinese market

through this bond purchase.

As a result, because there is more money flowing into the Chinese market, what this

will do is that this will push the stock prices up, this will push the other asset

classes, for example, real estate and other forms of investing,

higher and higher.

Now, this is something that we have seen in 2020 or after 2020.

Quantitative easing was institutionalized by the US in 2008, in fact, when the

2008 real estate crisis broke down.

Then the US government printed a lot of money and it flushed their markets with

liquidity and the stock market rose quite a lot after that.

The same model was adopted in 2020.

During that time, China was really opposed to whatever the US was doing.

There were reasons why they were opposed to it.

One key reason was that China was trying to take on US in terms

of its economic might.

China was a very fast-growing economy pre-2008, and it did not want to give US

all the power in terms of money printing. Okay, fine.

Us will print a lot of money.

For the US, this will be an internal debt.

But in case that money flows to China through the hedge fund in the US or

through the foreign institutional investors route who will get that money

in the US and will invest in China.

China thought, A, that it will lose control over its company, and second, it

will be an external debt in a way for China.

China did not want to support the US in terms of this quantitative easing policy

that the US had adopted since 2008.

But in 2024, China has started to realize that they need a form

of quantitative easing.

That is one way of countering the growing power of the US, because in 2020, one

could argue that US has literally abused the money printing system.

They have injected a lot of liquidity.

They have taken on a lot of internal debt, which is impacting countries

all across the globe.

For example, all the inflation that we see in the world, a large part of

it could be credited to the US.

That it is due to US money printing that India is also suffering

due to high inflation.

Other parts of the world are also suffering through high inflation.

Even the US itself is suffering through high inflation.

But in US's case, because they get control this money printer, so to say, because

almost 70% of the world trade happens in US dollar.

Because the US government gets to print the US dollar, it's easy for them to

manage this internal debt because this debt is in its own currency.

But for other countries, this is an external currency.

Therefore, China has been very, very wary in terms of letting the US investors

participate in the Chinese stock market because from the US through excess money

printing, bring it to China, get control over the Chinese companies.

Therefore, we saw episodes of Jack Ma getting kidnapped and whatnot, which had

played out in the last two, three years in China.

This entire background, what this has done for China is that this has pushed them to

create their own money printing system, so to say.

In order to do that, Chinese government had to undertake certain steps first.

And a part of this, and this is a two-fold plan, the first picture you can see here

that the Chinese have been able to add to their forex reserve really, really fast.

This is one.

And second key thing is that if you look at the speed at which they are buying

physical gold, this again has been accelerated by a lot.

So they are building their balance sheet and they spent the last few years building

this balance sheet to get to a point where they can actually do

money printing easily.

Because every time a government prints money, for example, print as much money as

it like or the Chinese government can come, print as much money as it likes.

But the problem in that game is the moment you print crazy amount of money,

the entire world looks at you and say, Hey, can you even afford

to print so much money.

Then you have to show the strength of your economy.

If you have enough forex reserve, enough gold reserves, et cetera, that acts as a

counterbalancing position for this increased liquidity in the market

or increased quantitative easing.

In case you're new and you're getting confused with this entire thing, here is a

very quick breakup of what I wanted to cover.

That A, China always mistrusted the US.

They did not want to go along with the US's money printing game since 2008.

In order to act as a counterbalance, they started strengthening their balance sheet,

which they have already done it now.

Now, finally, in 2024, they have started to do their own version

of quantitative easing.

What does this quantitative easing means and what was the need for China

to do this quantitative easing?

For this, you need to understand the mix of Chinese economy.

Almost 30% of Chinese economy is dependent on real estate.

If you are a rich person in China, then one of your primary options to invest was

not in the Chinese stock market because it's very cyclical.

You can check it from the chart here. Here's the Hang seng Index.

You can see that it is very cyclical.

So a rich Chinese person would typically invest in real estate in China.

But unfortunately, since 2021, post-COVID, the Chinese real estate market started to

correct and the property prices there have corrected.

In fact, some of the biggest builders, like Evergrand, they completely collapsed.

On top of that, many banks suffered and a bunch of different problems happened

in the Chinese real estate market.

As a result, Chinese real estate investing was not a viable option for

rich investors in China anymore.

Which brings me to my personal connect.

Over the last few months, I have spoken with a lot of Chinese investors, and they

have been looking to invest their money across real estate in Dubai,

Thailand, Singapore, Malaysia.

In fact, this situation is such that any market which opens up, Chinese investors

are the first ones to purchase property there.

This has happened in Dubai, this has happened in Thailand, this has happened in

Malaysia, this is also happening in Europe as we speak.

Practically what started happening is that rich people in China were left with very

little options to invest anywhere because the stocks were not moving and

that was not a viable option.

On top of that, real estate market had corrected.

So where do rich Chinese people take their money?

They wanted to invest in foreign real estate.

But then the Chinese government came and imposed a ban on that as well.

And the Chinese government started to realize that, Hey, we want to give some

option to rich people here where they would feel okay putting it, and

they see some growth potential.

So opening up their stock market could be the step one in this entire game.

And we are now sitting at that watershed moment.

So then comes the golden question that how all this impacts you as an end investor

who is probably not investing in the Chinese market, but are probably investing

your money in the Indian market or the US market.

Would it have any impact?

Well, it will have a lot of impact on you.

Take a look at this chart, you will see that China comes as a close second in

terms of the economic strength in the world.

Whenever any major economy decides to do quantitative easing or increase liquidity

in their own local currency, it will have a domino effect all across of the globe.

This money will flow to different parts of the world, including that in India.

And whoever is owning assets in India or in Dubai or in China or in the US or in

any other part of the world, it will be a good thing for them.

For example, if you own Indian real estate, will it go up?

Yes, most likely it will.

Bitcoin has already started shooting up.

Even Indian stocks, US stocks, they will all rise.

Even Chinese stocks might be sitting at that watershed moment where a lot of

potential growth could come from this point on.

So what are the steps that I'm taking?

Well, number one, I am building positions in the Chinese market.

I'm diverting roughly 10% of my portfolio to China.

This is a long term bet.

I do see sense in the bet that the Chinese government is making.

So I am building my position there.

I want to be diversified.

Just for context, if we actually step back and see that what has happened in the last

20 odd years, if you study the phase somewhere around 2000 to 2008, Indian

markets were undervalued and the US markets were overvalued, so to say.

So a lot more growth came in the Indian market compared to the US market.

From 2009 all the way till 2016, 2017, it was the opposite that the Indian

market had become slightly overvalued.

So not much run-up had happened in the Indian market in that phase

compared to the US market. So US market did better.

Now in 2020s, we have to similarly figure out an arbitrage, and this

could very well be China.

I have always advocated for diversity in investment.

Therefore, even I'm restructuring my portfolio.

Taking the Chinese bet makes a lot of sense.

That's part A. Now, part B.

If you look at Southeast Asia, especially something like Thailand, what they have

started to realize is that their population is going down.

As a result, they have to figure out new avenues to generate

interest in their economy.

Yes, with the population shrinking, the economy would not roll fast.

They want to bring interest in their stock markets also.

They have started opening it up.

Chinese customers or Chinese curated customers might come

to these markets also.

So entire Southeast Asia looks like have understood the game that you

need to democratize your market.

India was quite early in terms of doing this, so we reaped benefits.

But But going forward in the future, it looks like that the world is

going to become multipolar.

This has already started to happen, and it's important for us as

investors to stay diversified.

One negative repercussion of all this is, again, we can go back in history and study

it, that post-2020, there was massive inflation in the economy.

Countries like India got more hurt compared to US.

With Chinese doing quantitative easing, again, the inflation will

keep going up in the economy.

Yes, government data and then they I say that it's only like 3%

or 4%, all that stuff.

But I don't think that those are true numbers, to be honest.

You have to worry about your segment inflation.

Inflation is going to go really, really fast.

Therefore, it's absolutely critical for you to understand how to hedge

your portfolio against inflation.

All these points I teach in a fundamental manner on my courses, on my

YouTube member community.

In case you want to learn things fundamentally

from an international investing perspective, I will highly

encourage you to do it.

I hope you found this video to be insightful and useful.

If you did, do press the like button, share it with your and I'll see you soon.