Hello, this is Yang Ho. Today, I would like to start by apologizing. I've been speaking quite conservatively about China, but recently, Chinese stock prices have been rising significantly. I will discuss this topic today. I've been continuously sharing updates with Naver Content Premium subscribers, and I believe that the video featuring CEO Shin Hyun-gwan will be released today or tomorrow. In that video, he provides a detailed explanation from the perspective of a local expert regarding the implications of the recent policies that have come out of China. I've been introducing that content on Naver Content Premium, but today, I would like to share my own thoughts on the matter. So, how should we understand the large-scale stimulus package that China has implemented?

Today, I will talk about how to invest. As you know, various policies have been introduced in China regarding economic stimulus. The first measure was a reduction in the reserve requirement ratio, which essentially means that interest rates have been lowered. There isn’t much to say about this; it’s something that has been done in the past and isn't particularly groundbreaking. 

However, the second point of discussion involves the People's Bank of China (PBOC), which has announced a policy that carries significant implications. The content indicates a strong message that the central bank intends to intervene in the stock market, or rather the capital market. As expressed by representative Shin Young-kwan, it seems they learned from observing the actions of the United States and Japan. He mentioned that they appear to have taken a cue from what the U.S. and Japan are doing. I will explain what this entails in more detail later, but fundamentally,

It was mentioned that loans would be provided against stocks. If financial institutions in China use their stocks or bonds as collateral, they can borrow money. Additionally, it was stated that if a company buys back its own shares, they would also provide loans for that. The scale of this was quite surprising, around 500 billion yuan. They even mentioned that if this amount is insufficient, they would consider lending more, and if that is still not enough, they would lend even more. For hedge funds, this phrase one more time can be really frightening. The reason is that if I short a stock and it drops, I can buy it back, but if it's not just once but two or three times, that is truly scary. This kind of strategy seems to be instilling fear in hedge fund investors, leading to speculation that they might have learned this approach from the U.S. and Japan.

Looking at the policies being implemented in Japan this time, it seems like they are being enforced in a forceful manner. From this, we can understand that hedge funds have really taken a hit this year in both Japan and China. Now, the third point is about fiscal policy. Many people think, what’s the point of implementing these policies when China’s economy isn’t supportive and is ultimately going to fail? However, they have also implemented fiscal policies. For example, in places like Shanghai, they are giving out coupons. People can use these coupons for consumption. They are even giving out cash directly. It’s not even COVID-related anymore, yet they are distributing money. This indicates that China is now truly taking serious measures to win the battle against deflation. I will discuss this further today.

In the morning, I introduced you to a piece by Ray Dalio, where he expresses his thoughts on the current situation. He seems to suggest that experts in China are thinking along these lines. He used the phrase what it takes. You might have heard this expression before. It was mentioned by Mario Draghi in 2012. At that time, Draghi, who was the president of the European Central Bank, made a statement during the European debt crisis. The atmosphere was such that people were saying things like just give up on the euro. However, Draghi came out and said that he would do whatever it takes to preserve the euro, so just wait and see. And, after all, the euro is still alive today.

If you look at the policies that President Draghi implemented, you might think, Wow, really? Is it really possible to go this far? That kind of atmosphere was created, and the situation is still the same now. This is what Ray Dalio mentioned. Recently, the Chinese leadership, including Xi Jinping, announced a stimulus package. Although they didn't explicitly say it, they essentially indicated that they would do whatever it takes. In order to pull China out of deflation, they expressed that they would do anything this time. If it doesn't work, they would do even more. They seem determined to keep going until it works, similar to performing a rain ritual until it rains. Up to this point, we've been discussing what kind of policies China has implemented. Now, considering everything I've talked about, how should we understand China's policies and these aspects?

I would like to explain what needs to be understood. As you know, the United States is currently maintaining very high interest rates, which suggests a commitment to a hire for longer strategy. However, on the other hand, there is also the idea that they want to squeeze China, effectively cutting off its breath. Of course, they don't say this outright, but maintaining such high interest rates for a long period makes one wonder if China can withstand it. I think they have that thought in mind. So, every morning, when I look at Western media, the tone seems to be questioning whether China will collapse or not. By keeping interest rates high, the U.S. is essentially tightening the noose around the Chinese government and economy. In this situation, it appears that there are concerns about Hongdae collapsing.

It felt like the real estate market was collapsing, and no one was consuming, creating a sense of impending doom. However, during the period of the Hire 4 Longo, China managed to hold on. I think we can say they did well to endure; they didn't die. The expression didn't die seems just right. Everyone thought they would fail, but they didn't. After maintaining such high interest rates, as you all know, what happened this time? The interest rate was lowered by 50 basis points. When the U.S. lowered the interest rate by 50 basis points, it was like saying, Let's see if you can survive. But then they thought, I might also be in trouble, and so they eased the situation. They were on the verge of collapse, yet they didn't fail. They realized that they couldn't let the economy stagnate, so they decided to lower it by 50 basis points. In this situation, China has been implementing the policies I mentioned earlier.

I think we can say that I had the thought of going out on a large scale as well. There's one more thing I want to explain. As you can see from my statements, when China attacks the United States, what do you think it uses for the attack? I’ve always mentioned that it seems to be attacking Western countries, including the U.S., through manufacturing. On the other hand, I said that the U.S. seems to be using AI to attack China. Many people have asked me, What does China want to achieve by further strengthening its manufacturing sector? Isn't it already overcapacity? What are they trying to do with that? So, let’s first think about what it means to strengthen manufacturing from an international perspective. For example, I...

Recently, I've been talking a lot about how the production capacity of cars in China is around 40 million units, but the actual consumption within China is only about 20 to 25 million units. So, if we subtract that, we have a surplus of between 15 million and 20 million units. Now, what should happen to this surplus? It needs to be exported. If we consider that cars from China are going to be exported, what will happen? Not only will there be tremendous deflationary pressure, but it will also lead to the collapse of other car manufacturers outside of China. This issue is clearly demonstrated by the fact that the U.S. has imposed a 100% tariff on Chinese electric vehicles, and Europe is currently deliberating on how to handle tariffs as well. Ultimately, this is the crux of the problem. Is it just the automotive industry facing this?

As you all know, through Temura, China is exporting tremendous deflation to the world. While this helps control prices, it poses a severe threat to manufacturing companies in all countries. In this situation, the U.S. is increasingly focused on AI, while China is pushing forward with manufacturing, leading to an intense battle between the two. There seems to be a momentary pause in this conflict. 

As shown in this illustration, the ultimate goal of the recent stimulus package is to increase demand in China, aiming for an output of 20 to 25 million units. If China can boost its demand, the number of products flowing out will decrease. This could potentially open up opportunities for manufacturing companies in Europe, including Germany. So, this is what I have been thinking.

The fact that China continues to strengthen its manufacturing industry makes me wonder why they are doing this. It reminds me of the time when masks were used to gain negotiating power. Is this similar to that? Of course, this does have some influence, but I believe that manufacturing itself has become a very strong negotiating card from this perspective. The reason I mention this is that the policies being implemented in China may seem absurd, and one might think, How can you do that? You don't even have your own currency! However, it’s impressive that this has become a strong negotiating card, leaving countries, including Germany, without a solid basis to strongly oppose these policies. So ultimately, it seems that...

There is no one opposing the idea that demand will increase in China. Another point is that they are trying to stimulate the stock market. To put it simply, this means they intend to change the flow of money. Changing the flow of money into the stock market implies that people in China are unable to consume due to the real estate situation. The real estate market is in poor condition, and since many people are heavily invested, they are using their earnings to pay off real estate loans, which limits their ability to consume. Therefore, the policy being introduced in China essentially tells people to make money in the stock market. It encourages them to earn money from stocks and spend it, as stock prices are expected to rise. If they don’t go up, then…

This is a policy that can be seen as a way to make money through stocks, so that we can spend some money and eventually create some cars to export. However, to achieve this, it seems likely that there will be more discussions about the stock market moving forward. Recently, stock prices have rebounded. If we look at how much they have increased in a short period, Hong Kong's stock market has risen by 30%, and Shanghai's has increased by 25%. Last Monday, there was an unprecedented surge in trading volume in China, equivalent to about 500 trillion won in Korean currency. This is roughly 50 times the volume of our KOSPI, indicating that significant events are currently unfolding. According to Ray Dalio, such stimulus measures may indeed end up in history textbooks.

It seems that this will be recorded as a very important event, and the Chinese leaders who implemented this policy will do whatever it takes to ultimately make this policy successful, or they will continue until it is successful. Now, you might be wondering what to do about stocks since they have risen so much. If you think about it, you probably have a very high exposure to the United States, and you also have some exposure to South Korea. Then there are countries like China or India. In my opinion, I don't think there will be many people trying to reduce their holdings in U.S. stocks. Rather, I think people will be considering whether to sell South Korean stocks to buy Chinese stocks. Unfortunately, it seems that while the situation in China is good, it creates a somewhat unfavorable situation for South Korea in terms of supply and demand, which is quite unfortunate in my view.

I believe that we should consider China as an investment target, despite the current unfavorable conditions. It might seem contradictory to suggest buying stocks in China while the country is still trapped in a deflationary cycle, and you might wonder if it's wise to invest after such significant price increases. However, I feel that having at least some exposure to China is necessary. That's why I initially apologized for my earlier statements. 

If you don't want to invest in China, that's perfectly fine. But you might want to be aware that there could be consequences if money starts flowing from India to China, or from Korea to China, or from Japan to China. Understanding how these dynamics are unfolding in China is crucial, which is why I decided to create this video.

I saw it. So, if you liked today's video, please don't forget to hit the like and subscribe buttons. I will say goodbye here. Until now, it was just Wi. Oh, I'm just curious, the Chinese market has improved, hasn't it? Well, it's not better than the US, of course. It's not better than the US. So, in comparison to Korea, how does it look? Ah, well...

[그냥효] 죄송합니다... 중국이 완전히 바뀌었네요...

효친님들을 위한 바이사이드 애널리스트 이효석 매니지스트입니다. 
운용 경험을 살려서 변화된 세상에서 생존을 위한 투자전략을 리서치하고 있습니다.
비즈니스/광고/협업 문의 : contact@hs-academy.kr


[그냥효] 죄송합니다... 중국이 완전히 바뀌었네요...

Scripts