Chinese Economic Trends and Market Response
Chinese equity trends have been strong despite new US tariffs. Recent government measures to bolster the real estate sector appear more substantial than past efforts. Local governments are being instructed to buy unsold homes from struggling developers to convert them into affordable housing, marking a significant shift.
Industrial Production and Economic Recovery
Industrial production in China has returned to pre-pandemic levels, with recent strong momentum. This recovery trend in Chinese equities appears sustainable. The success of the Chinese authorities seems more likely this time as the industrial sector is performing robustly, providing a positive sentiment boost.
Investment Implications
Steno Research is considering increasing exposure to China, noting strong data trends in industrial production and supportive policies in real estate. The potential impact on commodity markets is significant, as China has been heavily buying copper, iron ore, and gold rather than oil, signaling a change in strategy. The traditional relationship between commodity markets and Chinese economic activity may no longer apply.
Sector and Geographical Trends
In the equity market, consumer discretionary segments in the US tend to benefit from a Chinese economic rebound. However, materials sectors might be overextended. Geographically, MSCI Brazil and MSCI Indonesia are now the largest "betas" to China, well-positioned to benefit from the potential breakdown of US-China relations. South Korea also presents opportunities, though it is more entangled in geopolitical tensions.
Future Outlook
Steno Research maintains a positive portfolio tilt and is considering direct exposure to China. The ongoing recovery in industrial production and supportive real estate policies offer compelling reasons to be optimistic. However, the response of commodity markets, particularly oil, will be critical in shaping future investment strategies.
Crypto Portfolio: Market Narratives and Outlook
The crypto market has shown resilience despite recent bearish outlooks, with Bitcoin surging 5% following a softer US CPI report. However, Steno Research remains cautious due to the lack of compelling long-term narratives.
Market Dynamics
The macroeconomic environment suggests a potential rise in crypto prices, but crypto-specific factors point to a downward trend. Institutional holdings in Bitcoin ETFs have not met expectations, and much of the current market activity is driven by retail investors and basis trades rather than genuine long positions.
Key Factors to Watch
US-based Bitcoin spot ETFs have seen net inflows, indicating a more balanced market. The upcoming SEC decision on an Ethereum spot ETF could also impact market sentiment. Despite recent positive momentum, Steno Research remains bearish but acknowledges the potential for a market shift.
Conclusion
Investors should closely monitor Chinese economic trends and their implications for global markets, particularly in commodities and equities. In the crypto space, market dynamics and regulatory decisions will play crucial roles in shaping future trends.