Stephen Jen, CEO of Eurizon SLJ Capital, suggests that investors should capitalize on the recent surge in Chinese equities and the yuan, while also taking advantage of the decline in the country’s bond market. In a report issued to clients on Friday, Jen stated, “Investors are significantly underweight in all things Chinese, and with Chinese equities being extremely undervalued, a significant rally is entirely possible.”
Jen’s optimistic outlook follows a trend among investors, including billionaire David Tepper, who have shown renewed interest in China after the government implemented extensive stimulus measures. He noted last month that Chinese companies might be prompted to liquidate a substantial $1 trillion in dollar-denominated assets as the U.S. begins to cut interest rates.
The recent policy easing has propelled the CSI 300 index to its most significant gain since 2008, yet a considerable 19% of respondents in Bank of America Corp.’s September survey of global fund managers identified “shorting Chinese stocks” as one of the most favored trades.
Jen highlighted that as China enhances its economic strategies concurrently with the Federal Reserve’s interest rate cuts, and with oil prices remaining low, risk assets “ought to perform exceptionally well.” He further stated, “After the U.S. election, I expect global equities to experience a powerful rally as we approach year-end.”
Known for developing the “dollar smile” theory, which argues that the U.S. dollar strengthens during both robust economic growth and severe downturns, Jen anticipates a decline in the dollar’s value against the euro, yen, and yuan. This expectation is based on his outlook for U.S. inflation trending toward zero and the world’s largest economy “soft landing.”
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