China’s government recently announced a series new economic measures aimed at boosting the property and stock market, and that has caused China-based stocks to surge last week.
The central bank last week unveiled a swap program initially worth 500 billion yuan (USD71.3 billion) to fund stock purchases by brokers, funds and insurers. It will also create a 300 billion yuan re-lending facility to fund share buy-backs by listed companies. Both schemes are set to be expanded.
The iShares China Large-Cap ETF (FXI), China stock market’s equivalent of the SPY, jumped 18% for its best week since its inception in 2004, and is now up over 20% in the past two weeks.
I started building up my Chinese stock & options portfolio on 1st Oct 24 to capitalise on the bullish momentum of the China stock market. I bought 100 shares of Nio @ USD6.79 to average down my existing 100 Nio shares, where my initial breakeven cost was USD55. I also bought 5 x LEAPS CALL on FXI, expiring on 16 Jan 26, with a strike price of USD40. The intent is to let these contract turn from OTM to ITM and the gains will increase exponentially.
Trade details here:
[1 Oct 24] Bought FXI LEAPS & Nio Shares
On 2nd Oct 24, my LEAPS CALL was up almost 100% though the share price of FXI increased by less than 10%. I then added another 100 shares of FXI (which to me is lower risk than buying CALL options) and another 10 x FXI CALL (for greater gains if the stock continues to go upwards).
Trade details here:
[2 Oct 24] Bought FXI Shares & LEAPS CALL
After 2 days of purchase, my total capital in China’ stock market is now close to S$10,000 (50% shares, 50% LEAPS CALL options). My plan is for these positions to grow as the bullish momentum continues, maybe exponentially if the positions should turn ITM. My max loss will be the $10k capital that I have invested into the Chinese large CAP ETF.
I hope to hold these FXI positions (shares + options) for the Chinese stock market to rally higher and then take profit when the time is right. I may add on more shares to increase my portfolio size, depending on how things develop over the coming weeks. You can follow me on my Patreon page to see my trades on the same day that I made them.
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Risk Involved
I certainly hope that these $10k capital does not go to waste and that China stocks will all do well for the longer term. However, I am also mentally prepared that if the China stock market crashed again, I may lose all of my capital. So, be very careful if you are venturing into the China stock market as anything drastic can happen, at any time, when you least expect it.
My biggest risk in this China portfolio comes from my options contract, which made up 50% of the $10k portfolio, as they are time-sensitive and can swing up and down quickly. I am not too concerned about the other half of the allocation, which are invested in the Chinese large CAP ETF (“Chinese SPY”) as I can bag hold them for the long term if the market crashes again. An ETF is much safer as compared to buying individual companies as they may have different fortunes as the main index, e.g. Tesla is falling but the rest of the US Mag 7 is rising during the first half of 2024.
Concluding Thoughts
The China stock market has been depressed for the last 3 years with many quality companies going undervalued. I think the biggest enemy is the Chinese government who had carried out a series of crackdown, targeting the gaming, education and big tech industries, causing huge drop in share prices and investors to lose confidence and exit the stock market.
Ironically, the biggest friend is also the Chinese government who are now injecting plenty of liquidity and loosening monetary policy just to rejuvenate the stock market. The latest stimulus reminds me of the unlimited QE that US Federal Reserves introduced in 2020 to boost the economy amid the pandemic, which resulted in massive bull run in the US stock market.
It was also reported that the Chinese people are moving their savings out of bonds and fixed deposits, and into the stock market, with more than 1.8M trading accounts being created prior to the Golden Week Holiday. When the Chinese people are back from their holiday next Tuesday (8 Oct 24) and their trading accounts ready, I believe that the stock market is likely to go higher with new funds coming in from Chinese investors as they shift their savings from risk off assets into the stock market.
P.S. Please do your own research and manage your risk accordingly. There is absolutely no guarantee that these measures will definitely boost the economy or lead to another soaring bull market as none of the measures have been implemented yet. The stock market is simply front running these events and surging ahead before the actual events happen. There is always a risk that things may not be as optimistic as expected, so be careful before dumping your hard-earned money into the stock market.
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