The "Beijing Put" | Jason Hsu's Bull Case For Chinese Stocks

Episode Summary

Executive Summary: Jason Hsu argued that China’s equity slump is driven more by extreme negative sentiment than collapsing fundamentals, and that a quantamental approach can identify mispriced opportunities—especially onshore A-shares and blue-chip state-owned enterprises. He also sees Beijing actively managing real-estate, banking, and equity risks to avoid systemic crisis, while favoring markets like Mexico and selective EM exposures over India.

Main Topics: Quantamental investing in China (Priority: 5/5): Hsu explains Raliant’s process: combine quantitative factor screens with fundamental judgment to exploit inefficiencies that persist in emerging markets, especially China where accounting red flags and valuation signals still work well. China equity bear market and sentiment (Priority: 5/5): He argues the selloff is primarily sentiment-driven—fueled by fears over Taiwan, U.S.-China tensions, and policy reversal—rather than purely by earnings deterioration. Preference for onshore A-shares over offshore mega-caps (Priority: 5/5): Raliant focuses on domestic Chinese shares because they are less efficiently priced, less crowded by global capital, and offer more alpha than Alibaba/Tencent-style offshore names. Real estate downturn and policy management (Priority: 4/5): Hsu says China’s property pain is a psychological and wealth-effect problem more than a U.S.-style household leverage crisis, because homebuyers use more cash and the state tightly controls speculation and financing. Banking system resilience and state support (Priority: 4/5): He is relatively constructive on large state-owned banks, arguing Beijing has stress-tested the system, provisioned for bad loans, and can prevent bank runs through direct state control and liquidity support. EM rotation: Mexico, India, and China’s role (Priority: 4/5): He sees Mexico as a major beneficiary of friend-shoring, is less enthusiastic on India after valuation/run-up, and argues China’s underperformance has distorted EM indices and created opportunities elsewhere. Beijing put and market support mechanisms (Priority: 4/5): Hsu describes direct and indirect state support for markets: SOE buying, social security and provincial funds, and a push to move retail money from deposits/brokerage into wealth management products.

Key Arguments: China’s stock weakness is dominated by sentiment compression, not a collapse in earnings; valuations have fallen from roughly 14x to around 8x in extreme cases, creating contrarian opportunities. Quantitative factor models work better in emerging markets than in the U.S. because accounting tricks and inefficiencies are more persistent in less efficient markets. Onshore Chinese A-shares offer superior opportunity because they are less accessed by foreign capital and traded largely against local retail investors who make more mistakes. The real estate crisis is severe but not comparable to the U.S. subprime crisis because Chinese households are not heavily leveraged on their mortgages and much of the pain sits with developers. Beijing can prevent a banking crisis because the banking system is state-controlled, heavily provisioned, and backed by the central state in both liquidity and solvency scenarios. Large centrally controlled state-owned enterprises can be attractive because they combine government backing, dividend support, and operational discipline relative to local SOEs. China’s long-term industrial story is not broken: it remains a major manufacturing base and is moving up the value chain into higher-quality production like EVs. Friend-shoring is a tailwind for Mexico, Southeast Asia, Taiwan, and Korea, while India may be over-owned and over-hyped relative to its manufacturing limitations. Beijing is likely to support equities through direct buying, state-fund allocations, and by pushing bank deposits into wealth management products that include stocks. Lower Chinese rates do not work like U.S. rate cuts; they can make households feel poorer because savings income falls, so fiscal spending matters more than monetary easing.

Data Points: China stock market PE multiple: Historically about 14x, with extreme lows near 8x - Hsu cites this to show sentiment-driven derating in Chinese shares Onshore vs offshore performance gap: About 50%–60% cumulative differential over the last three years - He says onshore A-shares outperformed offshore Chinese shares materially Offshore large-cap return comparison: Offshore Chinese shares fell about 70% in some cases - Used to contrast A-shares with Alibaba/Tencent-style declines Real estate price-to-income ratio: Shanghai around 45x - He uses this to illustrate how unaffordable major Chinese housing markets became Chinese first-home down payment: 30% down payment - Hsu notes mortgage financing exists but is constrained and more restrictive than U.S. lending historically Second-home financing: 100% cash required in many cities/provinces - Used to explain why speculation is mostly cash-funded and tightly controlled Developer leverage: Around 20:1 gearing - Describes the leverage profile of some Chinese developers before state intervention Commercial bank interest/deposit yield: About 2% - He contrasts this with SOE dividend yields SOE dividend yields: Around 4.5% in some cases - Used to justify attractiveness of some state-owned names Chinese household savings rate: About 30% - Supports argument that households are large savers and the equity market is a small wealth-storage vehicle Bank deposits and quasi-deposits: About $30 trillion - Hsu estimates the scale of cash-like household assets in China Chinese stock market size: About $13 trillion in 2020-2021 - Shows domestic investors dominate market flows EM performance excluding China: Around 20%+ in a strong year vs China at roughly -25% - Used to argue China dragged down broad EM indices Per capita GDP in China: About $13,000 - He cites this as evidence China remains a high-growth but maturing economy India per capita GDP: About $3,000 - Used to frame India as earlier in its development path

Pivotal Quotes: "brutal is absolutely justified, and it's probably spot on." — Jason Hsu: His view of the Chinese equity bear market "I like China right now because it is really, really cheap." — Jason Hsu: His contrarian stance on current Chinese valuations "we want wealth management. We do not want just brokerage day trading" — Jason Hsu: Describing Beijing’s push to reform capital allocation and support equities

Implications: The episode suggests China is investable despite headline gloom, but selective positioning matters: favor onshore A-shares, large state-backed firms, and friend-shoring beneficiaries like Mexico. For EM investors, active allocation may outperform passive indexing.