Whiskey & Green Tea

The core of capitalism is its extremely democratic nature.

The masses crush wily contrarians on a daily basis,

The market can stay irrational longer than you can stay solvent

Being correct in science however, is never democratic.

One contrarian can commit mass killings amongst cherished beliefs.

Science progresses one genocide at a time

Look at Darwin for example.

Capitalism is democratic in another way too - capital seeks out labour and labour is attracted to pots of cash.

Capitalism pumps immigrants around the world; and pushes the wealthy to invest in disadvantaged areas.

30 years ago, billions of people looking for work in China attracted capital injections like nothing before and maybe we will never witness such inflows ever again.

What happens when capital meets labour?

Balance. Yin and yang

China has now caught up with global income averages.

Many have called 'bubble' on Chinese stock markets, but what's interesting is how differently analysts see the situation.

11 analysts on Bloomberg see things 11 different ways, but Bloomberg's clickbait headline leads with 'Is this the beginning of the end for Chinese stocks?'

Everyone who makes predictions about future market direction is a contrarian of sorts, as the market only decides on where it is at present, risking where it will go in future is dangerous to your financial health.

[Reminds me of Apple's Claim Chowder]

In any case, from just looking at the visual data what do we see using the Lazy PCA site?

The daily stock returns of an A25 ETF (FXI) over the last ten years have an unprecedented magnitude of mean reversion relative to momentum.

I suspect the daily autocorrelation is far more negative than what you see with even the Vix!

At a weekly sampling frequency mean reverting returns are perhaps at a par or below the Vix.

Notice something else, the returns are quite centred - much less negative skew than you'd normally see in stocks.

Very interesting.

And now for the big reveal.

Monthly returns flip to momentum dominating. Not strong, but noticeable.

[Quarterly sampling also sustains momentum's dominance]

I have never seen a flip from mean reversion to momentum like this.

Note also that both monthly and weekly charts have the same axis ranges! Meaning, extreme returns for both frequencies are about the same.


Some more reasons to tempt human capital into China's markets.