What is the Chinese market trying to tell us?

After a record setting 2021 year in the financial markets investors are being brought back down to reality as inflation, supply chain issues and war are all now part of our reality. One surprising aspect of this market is how Chinese equities are melting down. 

Th logical question here is why are Chinese based positions performing so poorly? $PGJ, the Invesco Golden Dragon Chinese equities ETF is down 80% since February of 2021. The current story is that around this time Jack Ma, the founder of one of China’s largest company Alibaba, was detained by the government for a few months for reasons not truly known. He was never convicted of a crime and hasn’t publicly spoken out against the Chinese Communist Party. The situation showed how much control the CCP has over Chinese stocks and the going story is this fear is keeping investors away from Chinese stocks. 

But what if there is more to this story than meets the eye? 

Another major world event happened during this early 2021 time period, the election of Joe Biden as US President. Is it just a coincidence that just two weeks after Biden is sworn in Chinese markets top and now are down +75% since then? Well some think the CCP’s heavy hand in Chinese stocks is scaring investors but I think there is something else going on. 

What if China is seeing a situation unfold internationally where the US doesn’t have the leverage that it used to? With the middle east, Ukraine and just how the US is viewed internationally seems to be weaker than in years passed. Taiwan has been in question for years now, and the CCP has said they will capture Taiwan in the near future. This fear is confirmed with the US sending “Advisors” to Taiwan. The CCP wants Taiwan for a couple of reasons, first the CCP doesn’t like having a US friendly country right off its coast. Second, Taiwan is responsible for the majority of semiconductor manufacturing in the world and by capturing it would control the worlds supply of semiconductors. These two reasons alone make it more than imaginable that China would try to take Taiwan. 

The CCP is not stupid though and realize that any attempt at taking Taiwan would crash financial markets and could send the S&P500 back down to 2000 levels or close to a 50% reduction in value in very little time. In order to be ready for this event the Chinese government has been tightening its economic conditions having abnormally high interest rates and not following the same type of QE that the West has chosen to help soften the blow of COVID. This has led to the collapse of corporations like Evergrande who was a giant real estate developer based in China. One needs to ask why would China in act these policies that hurt Chinese companies? There must be a bigger goal in mind. 

It seems like the CCP is beginning to create a war chest. They have forced the Fed into a position where it needed to flood the system with money and now is cashing out and hoarding commodities, gold and other valuables in an environment that will be panicked and shocked. So, as the Chinese stock market continues to fall remind yourself who is the seller? It is without a doubt the CCP taking huge amounts of money off the board and are preparing for a conflict that could shape the world as we know it. 


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