Markets in 2 Minutes: Cheap China Stocks Have State Support

Let’s talk about these markets in a couple of minutes. And we had a couple of guests on last week talking positively about Chinese stocks in a way that maybe European guests haven’t done for a little while. How excited are you by Chinese stocks these days? Very, Anna. As you’re not probably surprised to hear, look this is a theme that I was early on. You know we talked about last year about being bullish in Chinese stocks. It was the wrong time. It does feel like the narrative is changing now. So there’s a couple of dynamics here. First of all, we know that so much foreign flows have come out, the world is underexposed story, this story if it can turn around and some of the drivers are the fact that the government is providing multi prong support, its monetary support, fiscal support, it is providing reform. And ultimately, these stocks are just valued extremely cheaply. And I think you’re potentially getting a narrative here where people are going to be slow to buy this bullish narrative given all the kind of the policy twists and turns from Xi Jinping over the last number of years, given that the occasional crackdown of the private sector, it’s not where enthusiasm is going to suddenly run away rampant. But you’ve just got a story which is so discounted that with a number of positives coming in and a national team of buying stocks, it is much easier to start buying a very discounted asset. OK, OK. So Mark is positive on Chinese stocks. We take that message loud and clear from China to the US and treasuries. We saw of course the textbook market reaction to a weaker than expected jobs report. We saw yields coming down at the short end on Friday. What we now look ahead though to a lot of issuance coming this week, what how do you expect that to play out? Yeah, look, I think that the big dynamics the next couple of months is, is steepening of the US yield curve. So I think that the dovish reaction function of the Fed and that jobs report will help to put a cap on front end yields in the US But ultimately all that supply is going to add to the upward pressure on the long end. And you see that technically the short end yields broke their broke their uptrend, the long end yields didn’t and you’re you’re seeing a return to term premium as we do worry about that kind of that supply that is ongoing. So I think steepening is going to be dynamic, we’ll see. We might eventually, in the next couple of months, see the end to the longest ever recorded yield curve inversion.