Lyxor tracks rising euphoria in Chinese equity markets

Lyxor Asset Management in its weekly briefing pointed out the recent surge in Chinese equity indices of 15% in July. They said the rally is unfolding in extreme trading volumes that is fed by strong domestic and foreign capital inflows. In part officials say that China’s restarting of its economy has positively surprised investors as the resurgence of coronavirus infection cases has proven to be manageable so far. “Equity markets are also benefiting from strong macro liquidity, a large part of which resulted from Chinese authorities’ targeted but continued stimulus,” wrote Lyxor’s research team. They also say that the lag in Chinese equity valuation relative to other foreign markets has not reflected China’s relative success in managing the virus impact. There are market risks, however, as the stock indices reach their 2017 pre-trade-war resistance levels and the trade ramifications following the removal of Hong Kong from preferential trade status with the U.S. and expected U.S. tariff escalation. So far though, Chinese Equity UCITS funds tracked by Lyxor had successfully captured the stock rally. These funds have increased their net exposure over the recent months to record levels and have benefited from their tilt towards growth, quality, technology and tertiary/services stocks, as well as those likely to benefit from infrastructure spending. Lyxor estimates that the active Chinese equity strategies are generating alpha and have fully recovered losses from earlier this year.

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