Good morning investors! One question Wall Street can’t stop asking: Will Chinese stocks keep going higher?

Today’s edition’s should give you the context to answer that for yourself.

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Bulls could soon leave the China shop

China emerges from its week-long market closure with the best-performing stock market in the world year-to-date. 

That statement only became true nine trading days ago.  

The iShares MSCI China ETF has returned more than 43% in 2024, handily outpacing S&P 500’s 20% gain. 

Before September 23, the US benchmark had more than doubled the returns of its Chinese counterpart.

One day later, China introduced a wide-ranging stimulus package — which included $113 billion in liquidity for its equity markets — and it was off to the races. 

If you isolate the performance to just the third quarter, the results are startling.

Look how Chinese stocks performed in the three months to September 30 against those of the US, Japan, and Europe. 

In the last week of September, Chinese stocks added almost $2 trillion of market value, according to Bank of America data.

Meanwhile, China’s weighting in the MSCI Emerging Market Index jumped from 24% in August to 30% now. 

For context, this is the fourth policy-fueled rally Chinese stocks have enjoyed in the last four years. Each of the last three fizzled not long after they started — including the one earlier this year in May, according to data from Charles Schwab. 

Investors like to capitalize on any juice from Beijing, but enthusiasm in markets hasn’t been able to shake broader pessimism on China’s economy. 

“With valuation largely normalized, the easy money has been made,” said Bank of America analyst Willie Chan. “We suspect the ‘buy everything in China’ stage will be over soon.”

To Chan’s point:

• China can’t figure out its deflation problem

• The real estate outlook remains bleak

• Consumer confidence continues to deteriorate

• Local government debt is in bad shape

No wonder JPMorgan, HSBC, Invesco, and other Wall Street firms remain skeptical about the latest stock surge. 

Strategists at Goldman Sachs, however, still see upside ahead for Chinese stocks.

Beijing, the bank argues, could still unleash more stimulus measures. 

As things stand, according to Goldman, the government has already implemented “a more substantial policy stimulus that contrasts with the sporadic and modest easing measures over the past few years.”

Will the US or Chinese stock market have a better fourth quarter? Reply to this email or let me know on X @philrosenn.

Elsewhere:

📊Stocks tumbled Monday. All three US benchmarks closed lower against the backdrop of hurricane concerns, overseas tensions, and a fast-approaching presidential election. Notably, yields on the 2-year and 10-year Treasury notes climbed above 4%.

⛽️ Oil prices keep ticking up. Hurricane-related supply disruptions in the Gulf of Mexico and the potential for an escalating conflict in the Middle East have pushed Brent crude above the $80-a-barrel mark. The commodity hit its 2024-low in early September but has since surged nearly 20%. (FT)

⌛️Remember when FTX imploded? The failed crypto exchange has just won court approval to fully repay its customers whose digital assets were locked on the platform when it went under in 2022. It’s an unusual result that could lead to an unlocking of $1 billion in seized assets. (Bloomberg)

Rapid-fire:

• Hurricane Milton has strengthened into a Category 5 storm and is expected to hit Florida by Wednesday (Business Insider)

• Samsung said it expects a worse-than-expected profit for the third quarter (CNBC)

• China’s latest steps to revive its housing market had an immediate impact on home sales (Bloomberg)

• A judge ruled that Google must make it easier for other app stores to compete on Android (WSJ)

• Shares of backup-power generation company Generac Holdings surged more than 8% amid storm dangers (CNBC)

• A handful of Wall Street’s rising stars shared how they stay sharp and fit for long hours and demanding jobs (Business Insider)

Last thing:

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