Frequent readers of know we have been “tactically” bullish the Asian space for some time, especially China. A few weeks ago, we reasoned that the sentiment and momentum for a continuation of the bullish move continue to be intact.

Our biggest “concern” has been the lack of “speculation”, as according to us this still continues to be the biggest driver of Chinese equities.

The CSI rose sharply overnight accompanied with huge volumes. Note we closed above the 200-day average for the first time since last March.

ChiNext soared by over 4%. This index is +15% in a few sessions. Volumes suggest investors/speculators are getting heavily involved in this market.

Below chart shows the CSI 300 (orange) versus the China margin debt (white). Note the recent spike higher in margin debt, the most vital part of a Chinese equity rally. People continue to talk about the imploding Chinese economy, and sure, it is imploding, but that has little to do with shorter term equity moves. PBOC has been very active in throwing liquidity at the system and it seems to have worked well when it comes to reigniting the dormant “speculator”.

Momentum in China remains extremely solid, and the overshooting is not overly surprising. As for the economy, one of the biggest risk indicators we watch when it comes to China´s economy, the AUD, continues to tell a different story. The gap versus the CSI 300 is getting wider by the day.

It´s not the economy, stupid!

Source; charts by Bloomberg