A Bank of America options strategist, who previously forecasted an upswing in the Chinese stock market, now suggests that the rally, which made Chinese stocks among the best performers globally, could still have significant growth potential. Many investors are gearing up for this possibility.
Lars Naeckter, the head of Asia Pacific equity derivatives research at Bank of America, noted an increase in bullish positions following China's announcement of various stimulus measures. The cost of call options relative to put options on Chinese stocks listed in Hong Kong, and the U.S.-traded ETFs tracking these stocks, has reached its highest level since at least 2008.
Despite the Hang Seng China Enterprises Index (HSCE, Financial) retracing nearly half of its recent gains, Naeckter believes the shift in China's policies and investors' willingness to re-enter the market could lead to further stock market advances.
In early September, when the Chinese stock indices were near their lows, Naeckter recommended a call option strategy that yielded more than 360%. He maintains that opportunities still exist as investors balance uncertainty with the scope and duration of ongoing stimulus measures, indicating significant upside potential from this point forward.
Naeckter and his team also suggest that investors adopt a call option strategy for the iShares China Large-Cap ETF, which is listed in the U.S. He acknowledges that noise between China and the U.S. will persist, creating ongoing uncertainty. However, the bigger issue for market participants is China's policy direction and upcoming meetings. While there remains a degree of skepticism in the market, Naeckter believes this is beneficial in preventing excessive price increases.
