Recently, Bank of America analyst Lars Naeckter stated that the current upward trend of Chinese stocks may not be over yet, with further room for growth. The reason his latest viewpoint has attracted market attention is because he accurately predicted the previous surge in Chinese stocks.

Lars Naeckter stated that due to China's policy shifts and investors' willingness to re-enter the market, there is still a possibility for further market rebound.

At the same time, the latest GDP, industrial production, and retail sales data released by the National Bureau of Statistics have all exceeded market expectations. In addition, the slowdown in housing price decline in September indicates that the Chinese government's stimulus measures are taking effect. Coupled with share repurchases, increased shareholdings, and the official implementation of refinancing, market sentiment improved further in the afternoon. As of the close on October 18th, the Shanghai Composite Index rose by nearly 3%, the Shenzhen Component Index rose by 4.71%, the ChiNext Price Index rose by nearly 8%, the Hang Seng Index rose by 3.61%, and the Hang Seng Tech Index rose by 5.77%.

On Friday, in the US stock market, Chinese assets also collectively rose, with the Nasdaq Golden Dragon China Index rising by over 3%. KE Holdings, Miniso surged over 8%, Li Auto Inc. surged over 6%, Lufax Holdings rose by nearly 5%, Futu Holdings Ltd., Bilibili, Weibo, Netease surged over 3%, JD.com, Xpeng, Baidu, Alibaba and others rose by over 2%.

What will be the market interpretation next?

Bank of America analyst: Chinese stocks can still rise

American bank options strategist and Asia-Pacific equity derivatives research director Lars Naeckter, who accurately predicted the rise in Chinese stocks, recently stated that the current upward trend of Chinese stocks is not over, and there may be even greater room for development, with many preparing for this.

Lars Naeckter stated that since China announced a series of stimulus measures, there has been an increase in demand for bullish bets. For Chinese stocks listed in the Hong Kong stock market and exchange-traded funds (ETFs) tracking these stocks on American exchanges, the cost of call options relative to put options has reached close to the highest level since at least 2008. Although the Hang Seng Index has retraced nearly half of its recent gains, Lars Naeckter mentioned that due to China's policy shift and investors' willingness to re-enter the market, there is still a possibility of further rebound.

In early September, when the Chinese stock market's index approached its low point, Lars Naeckter recommended a call option structure that yielded over 360% in returns. This week, during an interview in Hong Kong, Lars Naeckter stated, "The opportunity still exists. There is still significant upward potential in this market starting now as we strike a balance between uncertainty and the scope and timing of ongoing stimulus measures."

Additionally, Lars Naeckter and his team advised investors to adopt a call option strategy for the iShares China Large-Cap ETF listed in the United States. Lars Naeckter mentioned, "The noise between China and the U.S. will continue to exist, and the uncertainty surrounding this issue will persist. However, the bigger concerns for market participants are China's policies and the upcoming meeting." He also added, "There is still a certain level of skepticism in the market, which is a good thing as we may avoid an overbought situation."

American fund manager increases holdings in Chinese stocks.

Recently, the U.S.-based fund management company, Principal Financial, stated that China's "meaningful" measures to revitalize the economy have led to improved investor sentiment.

On Thursday, Steve Larson, the global equities portfolio manager at Principal Financial, expressed a shift from his previous skepticism to a more optimistic stance during a conference in Hong Kong. Although the fund's exposure to China is low, it is "moving in the right direction." Steve Larson's company, part of Principal Financial conglomerate based in Des Moines, Iowa, manages around $699 billion globally. Steve Larson's optimism reflects a new confidence from global funds in China's near-term prospects.

Principal Financial is not alone. A survey by Bank of America earlier this month revealed that as expectations for China's stronger policy easing measures rise, fund managers in the Asia-Pacific region are becoming more optimistic. They are allocating more funds to Chinese assets and reducing their exposure in India.

On October 18, after the People's Bank of China announced the establishment of a re-lending mechanism with an initial quota of 300 billion yuan for bank loans used for share buybacks, A-shares and Hong Kong stocks extended their gains. Earlier that day, data also showed that China's latest GDP, industrial production, and retail sales figures exceeded market expectations.

Wilson Asset Management Limited's portfolio manager Matthew Haupt stated that the latest announcement by the People's Bank of China undoubtedly helps boost market sentiment. Fidelity International's Asia economist Peiqian Liu stated that the People's Bank of China is focusing on 'reducing the financing costs of the real economy to help businesses and households start leveraging again,' and providing more liquidity support.

Recently, Bank of America pointed out in its latest global fund manager monthly survey that after China, the largest economy in Asia, introduced a package of economic stimulus measures, many investors have turned optimistic about the Chinese economy and stocks. It is reported that from October 4 to 10, Bank of America surveyed fund managers from 195 asset management companies worldwide, managing a total of $503 billion in assets.

After the introduction of stimulus measures in China, 'going long on Chinese stocks' climbed to the 'TOP 3' of the most popular trading list in Bank of America's current survey, with a high percentage of 14%, second only to 'going long on the Magnificent 7' (43%) at TOP 1 and 'going long on gold' (17%) at TOP 2. At the same time, the net percentage of global fund managers expecting a stronger Chinese economy in the next 12 months reached 48%, the highest level since April 2023.

Bank of America stated in the report: 'Expectations for growth in China have rekindled after the policy shift. Participants believe this time is different, so they have abandoned looking for opportunities elsewhere and turned their focus to China.'

Bank of America's survey also showed that investors are beginning to refocus on China, at the cost of reducing their exposure to the Indian stock market. By the end of the survey, foreign investors had withdrawn nearly $8 billion from the Indian stock market in October, marking the largest outflow of funds since the peak of the panic in March 2020.

Edelweiss Asset Management, President and Chief Investment Officer of Stocks, Trideep Bhattacharya, said: "In terms of valuation, the Chinese market has become quite attractive, coupled with expectations for stimulus plans, attracting capital."

CITIC Securities' Chief Analyst of Macro and Policy, Yang Fan, recently stated that after the political bureau meeting at the end of September and news conferences by major economic sectors, the policy level took initiative action, decisively increased the countercyclical adjustments in fiscal and monetary policies, and launched a series of incremental policy combinations to expand domestic demand, encourage effective investment, strengthen livelihoods, stabilize the real estate sector, boost the stock market, among other measures. This strong and open-minded policy, with clear determination, has already set a solid policy foundation. Following rapid and intense valuation sentiment repair and volatile adjustments, it is advisable to maintain position allocation, remain optimistic about high-quality listed companies, the more liquid STAR Market and GEM, as well as the merger and reorganization sector encouraged by policies, with more cases expected to materialize.

Editor/Somer