1. Seems like more and more of your articles are behind a paywall these days.

    I can’t access this but actually I am more inclined to do the opposite – buy currently unloved China stocks and sell US stocks into current rally which I feel is a bear market rally which will head down before too long.

    • Hi CMC,

      Haha actually these articles were always paywalled under Patreon – only difference is that I started sharing them on the FH main site recently.

      Anyway just for your benefit, the conclusion was pretty in line with what you just said. I too, see this as a bear market rally for US stocks. For China though, I think the picture is a bit more nuanced. China is going down a pretty dark path and the short term looks bleak. But they do have a lot of levers they can pull (for eg. fiscal and monetary policy, capital controls, state directions etc). And with more foreign investors exitting China, downside may also be controlled. With the right position sizing and risk control, China could be an interesting investment, with a lot of diversification benefits in the months ahead given how it trades on a different credit cycle from the West.

      Geopolitical risk premia is a big tail risk to be aware of though.

  2. Yah, for China, there is only one question in my mind – will the US and increasingly rest of West be successful in crushing it or not? If China is crushed, then it will be a long period of stagnation. If not, then there is no stopping the long term appreciation of Chinese assets. There is no reason why GDP per capita of mainland China should be lower than HK, Taiwan, Korea or Singapore for that matter. So if it catches up even part of the way, the upside is enormous. But it could get crushed. Japan was crushed by the US when it became too strong a competitor and now decades later, it has still not recovered its mojo.

    • Agreed. Although China has enough real domestic challenges of their own, that even without the US they might very well self-destruct by themselves!

      For what it’s worth though, China is well aware of the mistakes made by the Soviet Union and Japan, and they are trying desperately to avoid the same. Remember that Japan lost a whole decade because of their real estate bubble, and never really recovered after because of demographics. China is well aware of the risks of going down the same path. That said – knowing the problem, and solving it, are 2 different issues!

  3. Japan was crushed because
    – it was smaller in size (the only developed Asian country vs the West).
    – It is an occupied country since WW2. Still is today. Arguably not 100% sovereign as it trades off its dignity and decision-making for US security.
    – Plus there was this plaza accord which boosted US exports and harmed Japan. People often forget to mention this.
    – a xenophobic ageing population that can hardly attract talents. Closed society.

    China has always been a different animal: its population is > japan+russia+US+EU combined. Too big to be crushed. Ageing population also not really a big issue: who says u need 1.4bn to be the top dog? All developed countries suffer from ageing population. The US birth rate has been dropping for many years.
    US probably still the top in ability to attract talents but China is catching up rapidly. Plus China has a huge pool of educated engineers and scientists whereas education is on the decline in the US. If you look at recent achievements in space and tech, they can depend on themselves to move upwards technologically. They just need the time. Also note that some of the top tier researchers in the US are Chinese / non-americans. If anti-asian sentiments persist, some of these Chinese may go back to China. See FBI’s witchhunt.
    Us suffered a great depression in the 1920s before becoming a super power. There were many crises along the way. Who says every journey is smooth? China may be going thru some challenges but too early to determine the outcome.

    How many more crises can the US tolerate before greatly weakened? Politically getting more unstable . Trump supporters attacked FBI and capitol. This is the start of societal unrest, more to come in the future.

    On another note, EU will trigger a global recession. Why didnt you talk about this?
    In the future i predict breaking up of EU— it was already partially broken with Brexit. Where will China be? I dont know, it just needs to bide its time and hang on for survival to be the ultimate winner.

  4. China took up a lot of debt in the past 40 years to rapidly modernize and build infra. It literally built itself out of poverty but in the process constructed many ghost cities. This was a necessary devil for high economic growth. Now Xi has recognized the need to tame this and cut down the debt and clean up other things. Not sure Whether they can manage this well. Economically, chinese are known for high savings (wealth hoarding) and not as consumerism as US. So it can be quite difficult to grow the economy thru consumerism alone. The government know this and recognize this to be both a strength and weakness. Thus the need to bolster trade via belt and road which has other benefits like reducing reliance on the unreliable west and promote use of alternative settlement currency.

  5. I think if China is going down(getting crushed), let’s not forget they have some leverage as well. They may be forced to ban imports of foreign goods as a last resort. Eg german and US cars. Starbuck. Apple phones. Microsoft software . There are cheaper viable alternatives to these products. Corporate earnings will drop. Let’s not forget these US corps rode on the back of China’s growth. Hack, they are gradually moving away from foreign tech by making their own cars, baterries, chips, GPUs, enterprise software etc.

    They may also ban rare earths export. Cut taiwan’s sea cables and completely encircle and isolate it u til they surrender and give up TSMC.

  6. They have been completely isolated before in the commie era. They can tolerate isolation from the west again as the last resort. This time the difference is that It will still trade with friendly/neutral countries so it still has some buffers. But the west imports so many important products from china that it is actually the west that cannot afford to sanction china.


Please enter your comment!
Please enter your name here