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Betting On China As It Brings Out The Big Guns

Portfolio Armor's Photo
by Portfolio Armor
Thursday, Sep 26, 2024 - 23:09
A cannon shooting yen on a Chinese flag background.

China Brings Out The Big Guns 

As ZeroHedge reported on Thursday, "China's Bazooka Moment" has arrived. China's expanded stimulus measures include: 

  • A September politburo meeting focused on economic measures. According to Goldman strategist Lu Sun, economics is rarely the focus of a September meeting, so this is extraordinary. 
  • China issuing ¥2 trillion in government bonds (equivalent to 1.7% of its GDP), with half of those proceeds earmarked for consumption-related subsidies. 
  • China injecting ¥1 trillion into state-owned backs to boost their Tier-1 capital. 

In light of that, here are four bets on China we've placed in the Portfolio Armor trading Substack, starting with a brief update on the one I mentioned here earlier this week. 

Four Trades That Could Benefit From China's Bazooka Moment

  1. Qifu Technology, Inc. (QFIN). This is essentially the Chinese version of Lending Club (LC). Our trade here was buying the $25 strike calls on QFIN expiring on January 17th for $2. Those were trading for $4.70 as of Thursday's close, so you might want to go a little further out of the money if you are buying now. 
    Click on Shanghai to go to the post. 

     

  2. X Financial (XYF). Like QFIN, X offers a peer-to-peer lending platform in China, but X also offers other consumer financial products such as insurance. We bought the underlying shares on this one at $3.95 earlier this year. It closed at $5.45 on Thursday, but probably still has more room to run with the stimulus tailwind. 
    Click on the dragon to go the post.

     

  3. Hello Group Inc. (MOMO). This is a profitable Chinese social media company, which includes a dating app similar to those of America's Match Group, Inc. (MTCH). It also has non-dating apps related to karaoke, etc. This might be the deepest value of the names mentioned here so far, as it currently trades at 0.83x tangible book. Our trade here was buying the $7 strike calls expiring on January 17th for $0.70. Those were trading at $0.85 as of Thursday's close. 
    Click on the laptop to go to the post. 

     

  4. ​PDD Holdings Inc. (PDD). This Chinese company combines elements of America's Amazon.com, Inc. (AMZN) and Groupon, Inc. (GRPN). Our trade here was buying a $140-$145 call spread expiring on December 20th for $1.60. As of Thursday's close, the midpoint on that spread was $1.10. To be honest, I had mentally written off this trade after the company's weak guidance last quarter, but it spiked 13.57% on Thursday. Despite that, it still looks cheap, with a valuation rating of 9 (out of 10) according to Chartmill. 
    Click on the newspaper to go to the post. 

     

What Happens When The Effects Of China's Stimulus End?

Each of those names should benefit at least as long as the tailwind from China's stimulus measures lasts. If you think ZeroHedge's prediction below is correct, you might think about exiting after PDD's earnings in two months. 

If you'd like a heads up when we place our next trade, feel free to subscribe to my trading Substack/occasional email list below. 

 

If you'd like to stay in touch

You can scan for optimal hedges for individual securities, find our current top ten names, and create hedged portfolios on our website. You can also follow Portfolio Armor on X here, or become a free subscriber to our trading Substack using the link below (we're using that for our occasional emails now).

And you can hedge your long positions using our optimal hedging app. 

 

Contributor posts published on Zero Hedge do not necessarily represent the views and opinions of Zero Hedge, and are not selected, edited or screened by Zero Hedge editors.
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