Enter the Dragon

"It is always darkest just before the dawn." - Thomas Fuller 

The luxury (and curse) of being a global investor? There's never a dull moment. September kicked off with Fed chatter, then bam! China went from 'un-investable' to 'FOMO' faster than you can say "economic revival". 

This economic Houdini act couldn't have been better timed. The Fed's 50bps cut and a weakening dollar laid out the welcome mat, just in time for China's 75th Anniversary bash. Coincidence? I think not. 

The market reaction was swift. A 30% rally fueled by short-covering and short-term punting (my private banking friends haven't been so busy for quite some time!) But hold your horses - most long-term investors are still giving China a wide berth, preferring to frolic in the 'anything-but-China' playground. Can you blame them? History's taught us that Chinese stimulus announcements are often best met with a shrug and a "we'll see". 

Different This Time? 

I know, I know. "We've heard this before." Fair enough. But humor me for a sec. What if this time is different? 

Look at the lay of the land: 

• Property prices are dropping 5-6% per year  
• Deflation (PPI has been negative for the past 2 years, CPI is barely positive) 
• Consumer confidence never recovered from the Covid cliff (see chart below)

Chuck in frosty US-China relations (and more tariffs in a Trump win), and it's clear China needs a shot of economic adrenaline. 

Recent policy announcements have been more coordinated than previous rounds. But let's be real, what we've seen so far had been old tricks, nice-to-haves but not enough to turn the Titanic around. The real big gun that everyone is waiting for is the fiscal bazooka - cold, hard cash into consumers’ pockets to revitalize spending and confidence, which is a seismic shift from the investment-led stimulus typical of the past. 

It's a significant policy U-turn change- but Xi might've finally twigged that something's got to give. And it wouldn't be the first time - remember the zero-COVID 180? 

Do you have the patience of Xi? 

In true Chinese fashion, there's no rush to release everything at once. The market got a bit antsy last week, hoping for a slew of policy announcements. But come on, folks - timing is everything in this game. 

China's got to consider its moves in relation to the US, and right now, they don't even know who'll be in the White House come next November. It's logical for them to wait and see, potentially lining up all the firepower at the December CEWC meeting. 

Now, if the whispers are right, we might be looking at a fiscal package of 1-3 trillion yuan. That's about 1-2% of GDP - substantial, sure, but not exactly earth-shattering. 

And let's not forget, China's got some deep-rooted structural issues to deal with: 

• Aging population

• Overhang from a property market bubble

• Over-levered corporate sector

Sound familiar? If you're thinking "Hey, didn't Japan go through something similar?", you're onto something. And if we dust off the old Japanese economic playbook, the odds aren't exactly in China's favor. 

But there's a key difference: unlike Japanese leaders, who rotate through the top job, Xi's in it for the long haul. He's got a multi-decade horizon, and if he realizes that trying and failing is worse than not trying at all, he will persevere until it works. Remember "whatever it takes"? Those are the three most powerful words in financial markets. 

What if they don't pull it off? Well, Japan's experience tells us we could still see some monster rallies. One thing's for sure - ignoring China is no longer an option. 

Welcome back to the 24-hour world. Hope you've got your caffeine ready!