Hong Hao: Investors Should Put Their Money on the ‘Dogs’ of 2021

Peaking current account surplus caps index upside

Since Covid, China exports and saves, while the West imports and consumes. The accumulation of China’s current account surplus reflects the strength of foreign demand relative to China’s. But such surplus accumulation is set to slow, as Covid subsides and the world reopens. Indeed, China’s surplus may have peaked in March 2021 for this cycle. Historically, peak surplus coincided with peak stocks, as in late 2007 to early 2008, mid-2015, and again in February 2021. Meanwhile, our proprietary model suggests that the top of the trading range in the next 12 months varies little from the peak in 2021.