Everyone Is So Bullish That Bears Are Hard To Find

By Ye Xie, Bloomberg macro commentator

Three things we learned last week:

1. The risk rally has stalled after a spectacular November.

Global stocks fell last week, with China’s CSI 300 Index tumbling the most since September. The yuan’s rally also stalled, after failing to break 6.50 per dollar. Some consolidation is understanable after such a strong rally. After all, U.S. fiscal stimulus and Brexit negotiations remain in limbo and the Covid-19 virus is still spreading.

While the near-term risks linger, the consensus among market participants is that 2021 will be a good year for risky assets, thanks to the vaccines. A Bloomberg survey found strategists and investors are overwhelmingly bullish on emerging markets with China as their top pick for stocks, bonds and currencies.

If there’s a market correction, there may be plenty of investors waiting to buy the dip.

2. China’s credit growth has peaked.

Growth in outstanding credit eased to 13.6% in November from 13.7%, marking the first decline in more than a year. Policy makers are taking their feet off the gas a bit as the economy recovers. This week’s data are likely to show a continued growth rebound as retail sales catch up to the strength in industrial production.

The credit impulse, which measures the change of credit growth, typically leads metal prices and emerging markets by five to six months. So the markets are still supported in the first half of next year, even if the peak of the support is likely behind.

3. China leads the global crusade against big tech firms.

The Politburo, the top decision-making body of the Communist Party, vowed on Friday to strengthen anti-monopoly efforts next year as it seeks to rein in what it called “disorderly capital expansion.” It came after Beijing last month unveiled draft regulations aimed at rooting out monopolistic practices in the internet industry. Coincidentally, U.S. antitrust officials sued Facebook last week and a coalition of states want to break up the company by unwinding its acquisitions of Instagram and WhatsApp.

Facebook may not go down without a fight in the U.S. But when Beijing sets its sights on something, the job gets done. Just look at Ant Group’s IPO debacle.

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