Reference URL: http://mp.weixin.qq.com/s?__biz=MzAwMTAwMzcxMg==&mid=2650861807&idx=1&sn=d9192effdc8075345f0af830f189efc1&chksm=81140940b66380564e392c288e35fe7248b07e641bb35ce9ac51d73e63a01a3cf4047e23ca4c&scene=0#rd
China’s reflation trade, as measured by the relative performance of cyclical vs. defensive, has peaked last summer. At the time, the intensity of upstream commodity restocking also rolled over. For China, the reflation trade has long been over – contrary to consensus. Further, PPI inflation is surging globally, and cannot be explained by the supply-side reform in China. When Chinese cyclical’s relative performance and upstream commodity inventory cycle peaked historically, it means fading momentum in the upward thrust of commodities, China’s 10-year treasury yield and US cyclical’s relative performance, rising real interest rate, as well as peaking Chinese property cycle. And the cyclical recovery that consensus is raving about will lose steam in the coming months. Indeed, Defensive rotation in overseas markets will likely be concurrent with volatility surge, but may or may not correspond to the market’s final peak. Together with buoyant expectation, Chinese markets are vulnerable to a contagion.
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