Everything’s a Buy in China as Bulls Snap Up Yuan, Stocks, Bonds

(Bloomberg) -- The yuan is taking the spotlight again in a week when Chinese rates, credit, stocks and currency markets all managed to rise.

It’s having a stellar January only months after touching a decade-low, beating almost every other currency in the world this week. It also had its best week since 2005 relative to the dollar, with analysts saying a short squeeze may have exacerbated moves first triggered by a dovish Federal Reserve and signs of improving Sino-U.S. trade relations. A number of technical indicators suggest more gains are coming.

This seems to be typical behavior for the tightly-managed currency, with sharp breakouts in either direction following a stretch of relative calm. The question is whether the latest bout of strength is an anomaly or the start of a trend -- an important one for foreign investors looking to own yuan-denominated stocks or government bonds.

What’s certain is that all the reasons to be bearish on the yuan are still there: China’s economy is weakening and the central bank is in easing mode.

Shareholders Unbound

Perhaps the biggest story in Hong Kong’s equity market this week was Xiaomi Corp.’s meltdown. Many early shareholders cashed in as soon as their mandatory post-float holding period ended, with some making a fortune even though the IPO itself was a flop (by one measure, the city’s biggest flop ever). After the Chinese smartphone maker lost more than $6 billion in three days, analysts no longer predict it will recover its HK$17 issue price, according to the average price target.

There are another 40-odd companies in Hong Kong whose lockup periods expire in the first quarter, including other high-profile debuts like China Tower Corp., Meituan Dianping and Haidilao International Holding Ltd. A reminder that the city hosted the busiest venue for stock debuts last year.

Chart of the week

Options traders have cut their yuan short bets so quickly they’ve even turned slightly bullish. Read more here.

Catching up

Here’s what else caught our eye:

• Goldman picked a bad day to advise selling Great Wall.
• Hedging is a smart way to play the yuan rally.
• Airlines enjoy a boost from lower oil after a bitter 2018.
• Picking stocks gets even harder in China.
• BlackRock likes Asian dollar bonds this year.
• Chinese developers are the riskiest issuers.
• Global money managers stick to their China expansion plans.
• Where are all the venture capital deals?
• How to burn $4.6 million in 10 days.

©2019 Bloomberg L.P.