The ‘Big Short’ on China became the ‘Big Squeeze’ that caught Wall Street on the back foot
Global investors, who have been shorting China, now must scramble to rebalance their portfolios to ‘a more rational level’, analyst says
Wall Street is scrambling to catch up after Beijing’s surprise stimulus onslaught set off a bull run on the Hong Kong and mainland China stock markets, catching short-sellers off guard.
China stocks will gain at least another 10 per cent in a tactical rally in the near term amid more stimulus efforts by the government, Morgan Stanley said in a note to clients on Monday. UBS, meanwhile, bumped its year-end target for the benchmark Hang Seng Index up by 7 per cent to 22,100.
Japan’s biggest brokerage Nomura similarly raised its year-end target for the MSCI China Index to 65 from 59 on the back of the measures from China and the Fed’s unexpected jumbo rate cut on September 18.
The sentiment could not be more different than just two weeks ago, when shorting China stocks was among the most popular trades on Wall Street, just after going long on the so-called magnificent seven technology stocks, according to Michael Hartnett, Bank of America chief investment strategist.
The conviction to short China amid a deflating economy has caused a “massive squeeze” amid the unexpected stimulus-induced rally, Hartnett said in a note to clients over the weekend.
“Market expectations have been rectified decisively, and investor confidence restored significantly” by the recent strong policy signals, said Thomas Fang, head of China global markets at UBS.
