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Chinese Band aid

The Chinese leaders are trying hard to stop the market bleeding. After watching major indices fall 30% just in 2024, Xi jinping himself has stepped in to appoint new leaders for market supervision and provide solutions to the selling frenzy. The solution so far, seems to be forcing state owned enterprises and sovereign funds to simply buy the market. As a result, the inflows into EM Equities that you can see in the chart below have gone 3-sigma. Over the last 7 years the maximum inflows we’ve seen in the overall EM equity space did not account for more than $10Bn. Las week, the inflows, mostly to Chinese equities, were above $20Bn. Wether this is a permanent solution or a band aid on the problem is yet to be seen, but by looking at the chart, one can sense a bit of desperation, implying a “whatever it takes” mindset. The implications for EM equities can be big at a point where relative valuations to DM and in particular to the U.S. are at historical minimums.

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