Micron's excellent financial report guidance brings good news for the strong demand for AI, the signal of significant fiscal and monetary support from the Central Political Bureau meeting, and Saudi Arabia is rumored to undergo a major change to 'increasing production to maintain market share' pressuring down oil prices. Global stock markets welcomed multiple bullish signs on Thursday, with Goldman Sachs expert Scott Rubner pointing out that many investors have called it the 'most bullish morning of the year' on Thursday.

In the report released this Thursday, Rubner, Managing Director of the Global Markets Division at Goldman Sachs, stated that as the risk exposure remains high, recent news may not necessarily be a catalyst for further record highs in the S&P 500 index, but it's different for the Chinese stock market. Why does he think so? Rubner lists some reasons.

• Previously, global stock market investors have generally reduced their holdings of Chinese stocks, while the Shanghai Composite Index has risen by about 10% in the past three days, marking the largest three-day gain since 2020.

• Considering the short positions, low positions, and stock index tracking problems of global funds at the end of the quarter, the rise in Chinese assets in a single week was a painful trade for investors.

• The rapidly resurging markets have become the most favored trades after the November and December US elections.

• In the past 48 hours, Rubner has conducted more Zoom conference calls related to China than all related calls within the year so far.

• How did the market consensus view things before? Contrarian trading. How does the current consensus view it? This time it may not be contrarian trading.

• So far, Goldman Sachs has not seen any international buyers from outside of China make a move.

• Goldman Sachs is starting to see a FOMO mentality emerging in China, with a fear of missing out on the rise, "everything else is at historic highs."

This Thursday morning, Rubner is concerned about four things:

Firstly, the policy responses from the Chinese central bank and the Securities Regulatory Commission this week, with the left tail risk eliminated. Secondly, October 1st, National Day, marking the 75th anniversary of the founding of New China. Thirdly, the Golden Week holiday during National Day, with A-shares closed during this period. Fourthly, the crucial political bureau meeting in September, which has never coincided with the end of the month before.

Furthermore, the current positions are very favorable for Chinese stocks. Rubner lists the following evidence:

• There is a record demand for Chinese stocks. On Tuesday, September 24th, Goldman Sachs' main brokerage business, Prime Brokerage (PB), saw the largest single-day net buying volume of Chinese stocks since March 2021, and the second largest single-day net buying volume in the past decade, mostly driven by long positions.

• From a fund flow perspective, on Wednesday, September 25th, Goldman Sachs observed continuous demand for Chinese stocks, with continued buying by long positions.

• Chinese stocks have been bought for eight consecutive days in Goldman Sachs' PB business (macro managers, algo and multi-strategy managers, i.e., short-term traders) instead of the traditional long/short stocks or only long (LO). Stocks may be forced to rise.

• As of the end of August, the global mutual fund allocation to Chinese stocks accounted for 5.1% of assets, a level that is lower than 99% of the past decade.

• As of the end of August, the actively managed mutual funds' allocation to Chinese stocks was 310 basis points lower than the benchmark on an asset-weighted basis.

• In Goldman Sachs PB accounts, the total allocation and net allocation to China remain very low, currently below the levels of 93% and 86% in the past five years respectively.

• Prior to the recent rebound, hedge funds had less than 7% allocation to Chinese stocks, which is the lowest point in five years.

Lastly, Rubner mentioned in the report that the "most important point" is,

In terms of market structure, assets in China and other emerging markets have not benefited daily from passive fund inflows like the U.S. market.

The report mentions that assets in emerging markets are not benefiting from passive allocations. Of the $695 billion inflows into U.S. listed ETFs this year, only $4.93 billion flowed into emerging market ETFs, which accounts for 0.71% of passive assets flowing into emerging markets. However, the situation is changing since the debut of Deutsche Jinsha 300 Index ETF (ASHR) on June 9, 2022.

Editor/Lambor