China Brings Out The Big Guns
As ZeroHedge reported on Thursday, "China's Bazooka Moment" has arrived. China's expanded stimulus measures include:
- A September politburo meeting focused on economic measures. According to Goldman strategist Lu Sun, economics is rarely the focus of a September meeting, so this is extraordinary.
- China issuing ¥2 trillion in government bonds (equivalent to 1.7% of its GDP), with half of those proceeds earmarked for consumption-related subsidies.
- China injecting ¥1 trillion into state-owned backs to boost their Tier-1 capital.
In light of that, here are four bets on China we've placed in the Portfolio Armor trading Substack, starting with a brief update on the one I mentioned here earlier this week.
Four Trades That Could Benefit From China's Bazooka Moment
- Qifu Technology, Inc. (QFIN). This is essentially the Chinese version of Lending Club (LC). Our trade here was buying the $25 strike calls on QFIN expiring on January 17th for $2. Those were trading for $4.70 as of Thursday's close, so you might want to go a little further out of the money if you are buying now.
Click on Shanghai to go to the post. - X Financial (XYF). Like QFIN, X offers a peer-to-peer lending platform in China, but X also offers other consumer financial products such as insurance. We bought the underlying shares on this one at $3.95 earlier this year. It closed at $5.45 on Thursday, but probably still has more room to run with the stimulus tailwind.
Click on the dragon to go the post. - Hello Group Inc. (MOMO). This is a profitable Chinese social media company, which includes a dating app similar to those of America's Match Group, Inc. (MTCH). It also has non-dating apps related to karaoke, etc. This might be the deepest value of the names mentioned here so far, as it currently trades at 0.83x tangible book. Our trade here was buying the $7 strike calls expiring on January 17th for $0.70. Those were trading at $0.85 as of Thursday's close.
Click on the laptop to go to the post. - PDD Holdings Inc. (PDD). This Chinese company combines elements of America's Amazon.com, Inc. (AMZN) and Groupon, Inc. (GRPN). Our trade here was buying a $140-$145 call spread expiring on December 20th for $1.60. As of Thursday's close, the midpoint on that spread was $1.10. To be honest, I had mentally written off this trade after the company's weak guidance last quarter, but it spiked 13.57% on Thursday. Despite that, it still looks cheap, with a valuation rating of 9 (out of 10) according to Chartmill.
Click on the newspaper to go to the post.
What Happens When The Effects Of China's Stimulus End?
Each of those names should benefit at least as long as the tailwind from China's stimulus measures lasts. If you think ZeroHedge's prediction below is correct, you might think about exiting after PDD's earnings in two months.
The half-life of this intervention will be 2-3 months, then markets will realize China is not stimulating demand. Then we see new decade lows, then China goes all in with $2TN+ fiscal bazooka https://t.co/hmCFY1dV7I
— zerohedge (@zerohedge) September 24, 2024
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