China: Why Buy Into Market Weakness?

Everyone knows that the Chinese markets took an 8%  pummeling last week, especially on Friday. Why we think that this represents a buying opportunity:

1. What happened on Saturday. Just to refresh memories, the Peoples' Bank of China (PBoC) announced its fourth interest rate cut in seven months as well as reducing the percentage of deposits that banks must hold in reserve. Borrowing and deposit rates were cut by 25 basis points respectively. Now, the annual benchmark lending rate stands at 4.85% and the respective borrowing rate at 2.0%. In addition, the PBoC lowered the reserve requirement for finance companies.
2. The Economic Clock: implications. This has to exacerbate China's massive excess supply of money. Some of this may find its way into more lending activity, but the bulk of it will spill straight back into a cheaper stock market: too much money chasing too few assets.
3. Why we have a  buying opportunity. This Friday's 8% pummeling was not explained satisfactorily. Yes, there were margin calls - but why did they hit all of a sudden just this Friday? Yes, Morgan Stanley issued a bearish note on China - but who in China reads gweilo Morgan Stanley research in English, anyway? But nothing fundamental has changed: China's Economic Time remains characterized by an excess supply of money as well as an excess supply of goods. The PBoC just enhanced that excess supply of money.  That spells buying opportunity, all the more so in light of Friday's bruiser.
4. Market implications. Climb back in, all the more so because Greece has come to unsatisfactory closure, so expect a couple more market convulsions and then things settle down for the less-liquid summer.  Have a look at BlackRock's PHYSICAL A-share ETF in London (LSE:IASH), and their physical H-share ETF here in Hong Kong. Hs remain undervalued to As. Buy exporters off the back of a softening RMB. And buy our HK Tracker: we remain the water skier at the back of the Chinese speed boat.