2024-10-06 08:00:00
Investing.com – China‘s recent stimulus announcements have investors wondering how to position themselves if Beijing unleashes a more aggressive economic push, a so-called “bazooka” stimulus.
In a note on Tuesday, analysts at Barclays (LON:) acknowledge that this is not their base case, but stress that investors should prepare for this scenario due to its potential to significantly impact global markets.
Despite the recent rally in Chinese stocks, the broader market reaction has been relatively muted, leaving room for opportunities in other asset classes.
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Chinese stocks have seen some of the biggest moves in history, with China recording an impressive +17.6 sigma move in one week.
“The magnitude of these moves suggests that investors were not prepared for such announcements, and also that technical aspects such as positioning may have acted as an advantage,” Barclays analysts noted.
“Furthermore, this also indicates that while there may be more room for upside, most of the short-term movement may be over.”
The rally has been largely limited to Chinese stocks and their surrogates, such as European mining companies, but Barclays believes the real impact could come if China unveils a massive fiscal stimulus plan, such as a $10 trillion package. yuan for over two years.
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In this scenario, the effects could spread to global markets, creating opportunities in non-Chinese assets.
In particular, in a “bazooka” scenario, the stimulus would likely have more far-reaching effects on global assets, making upside opportunities in non-Chinese assets more attractive thanks to less prolonged movements and cheaper volumes,” the analysts continued.
They outlined several strategies to exploit this potential, focusing on US industrial sectors and stocks with high exposure to China.
Among them, analysts discussed buying US Oil Fund (USO (NYSE:)) call options, contingent on a stronger euro versus , as oil is particularly sensitive to positive surprises in Chinese demand.
A second opportunity is in the industrial sector, where Barclays recommends buying hybrid call spreads XLI (Industrial) vs. XLI (Industrial). SPY(). Historically, China’s credit cycle has been a strong leading indicator of industrial sector performance, and a major stimulus could give this sector a significant boost.
Finally, for investors seeking direct exposure to US-China trade, Barclays selects companies with high exposure to Chinese trade and attractive volatility profiles.
Among the leading candidates are Wynn Resorts (NASDAQ:), Western digital (NASDAQ:) each The Sands of Las Vegas (NYSE:), which could post significant gains if China’s economy recovers from stimulus.
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