APAC Wrap: A new idea in China
Coming back to that GS report earlier this year...
Taiwan: US assesses China not planning 2027 invasion and has no fixed timeline for reunification (WSJ)
The U.S. intelligence community has dialed back the view of the risk of a Chinese invasion of Taiwan by next year and concluded that Beijing would prefer to take control of the self-ruled island without resorting to force.
The finding is a shift from past U.S. warnings that an invasion could happen by 2027. That looming deadline fueled a sense of urgency in Washington and Taipei and prompted both to sharpen their strategy and invest in their arsenals.
“Chinese leaders do not currently plan to execute an invasion of Taiwan in 2027, nor do they have a fixed timeline for achieving unification,” said the annual threat assessment.
…it suggested that Beijing views an amphibious assault on Taiwan as risky and likely to fail, particularly if the U.S. intervenes.
In Taipei’s view, purges in China’s military leadership and performance issues with Chinese weapons have “led China to quietly postpone Xi Jinping’s original claim that it would be ready to invade Taiwan by 2027,” a Taiwanese security official said.
China: Jefferies see Chinese Shares as Top Bet During Iran War (Youtube)
Energy Independence and Resilience
Low Vulnerability to Oil Shocks: China is described as being “least geared” to the negative developments of high energy prices compared to other global markets [02:10].
Strategic Reserves: China maintains a decent supply of oil reserves to buffer against supply disruptions [02:18].
Renewable Energy Dominance: China has made dramatic advances in renewable energy and battery storage, providing it with “almost unlimited access to cheap power” [02:22].
Cost Advantage: In China, solar power has become cheaper than coal, putting the country “light years ahead” of the U.S., which faces electricity generation bottlenecks [03:01].
2. Attractive Valuations and Policy Support
Low Entry Point: The Chinese market bottomed out around late 2024 at roughly seven times earnings, fully discounting previous deflationary fears [03:39].
“Slow Bull Market” Strategy: The Chinese government is actively working to create a stable, long-term bull market by pressuring companies to increase dividend payouts and share buybacks while limiting the supply of new IPOs [03:31], [04:03].
The “National Team”: Government-backed funds (the “national team”) provide a safety net by buying into the market during corrections to stabilize prices [04:18].
3. Ending Deflationary Trends
PPI as a Bullish Signal: High oil prices resulting from the conflict could perversely benefit China by pushing the Producer Price Index (PPI) into positive territory [05:24].
Investor Sentiment: Mainland fund managers view positive PPI as a key indicator that deflation is ending, which would likely trigger a bullish reaction in the domestic market [05:32].
4. Effective Hedge Against Stagflation
Top Defensive Choice: If the conflict persists and oil stays above $100 per barrel, Chinese stocks and energy stocks are cited as the “two single best hedges” for investors to protect against global stagflation
China: What is top of mind here?
Impossible for us to call a top pick in China right now, having focused on China+1 ideas for so long.
However, we think we can clock a good idea when we see one, and it fits neatly into the supplier diversification theme: