Image: iStock
Image: iStock

Mainland China’s benchmark Shanghai index closed Monday up 0.3%, after tumbling as much as 1.4% to a two-month low.

The initial plunge was a result, as Bloomberg reported, of the central bank’s announcement on Friday that authorities would tighten regulations of China’s some US$15 trillion in asset management products. There was fear among some analysts that the stricter supervision would siphon funds out of the market.

The index quickly made up losses as investors began hunting for bargains, and as the realization set in that the new regulations were in line with what China has been doing successfully all year.

Portfolio reallocation to Asia is now a big theme across all the brokers. With China getting the leverage problem in hand, Asia Unhedged thinks this has the potential to be the big 2018 trade.

Asian rates markets were insulated from the kind of sensitivities that afflicted the c.a. deficit group (Brazil, Mexico, Turkey etc.) during the past month. Having a c.a. surplus in an environment of monetary tightening is a huge advantage.