To The Moon

According to the latest news, Bank of America strategists recommend going long Chinese stocks because they don't expect the trade and technology war with the United States to escalate. Strategists expect the U.S. stock market's lead to continue to fade after halting its sustained rally in early 2025.

Earlier, Goldman Sachs released a research report saying that the rise of DeepSeek has brought opportunities for medium and long-term revaluation of Chinese concept technology stocks. Goldman Sachs maintains its overweight rating on MSCI China, expecting the index to rise by 14% this year, and even reach 28% under optimistic expectations. In addition, A-shares will also benefit from the development of AI soft technology, and stocks in the soft technology field will be more leading in the market.

Deutsche Bank also said that 2025 will be a year for Chinese companies to rise globally, and the phenomenon of discounted valuations of Chinese stocks will disappear. The bank said that the bull market cycle of A-shares and Hong Kong stocks has started in 2024 and is expected to continue and exceed the previous high. A few days ago, BlackRock Fund also said that it remains optimistic about the medium-term Chinese market in the next 12 to 36 months, and is optimistic about Chinese stocks and interest rate bonds.

According to news on the evening of February 7, Bank of America strategists predict that after the U.S. stock market stopped its sustained rise in early 2025, its lead will continue to fade. Meanwhile, Bank of America recommends long Chinese stocks.

The aforementioned strategists recommend long Chinese stocks as they don't expect the trade and tech wars to escalate. Bank of America strategists also noted that the narrative surrounding the U.S. economy structurally overwhelming competitors is fading, while investors are also betting on geopolitical stability in the Middle East and Ukraine.

On the bond front, Bank of America expects the yield of U.S. Treasury Bond to fall below 4%, because U.S. President Trump wants to solve the government spending problem and stop the debt spiral, while also hoping that Congress will approve his tax cuts.

Money market funds attracted $46.8 billion in the week ending Feb. 5, with $16.6 billion flowing into bonds and $600 million leaving equity funds, Bank of America added, citing data from EPFR Global.

Goldman Sachs, Deutsche Bank and others are optimistic about Chinese assets

On Tuesday local time, Goldman Sachs analyst David J. The latest research report released by Kostin pointed out that the rise of DeepSeek means that the development of the AI industry is shifting from the hardware infrastructure layer to the software application layer. This trend provides new opportunities for the diversified development of the global market, especially the opportunity for medium and long-term revaluation of technology stocks.

According to the research report, the growth investment ratio (GIR) of U.S. companies is significantly higher than that of other regions of the world, especially in the field of AI. However, at a cost of less than $6 million, DeepSeek's R1 model achieves performance comparable to leading models such as GPT-4 and Llama, brighter growth prospects and technological breakthroughs, which will bring huge productivity gains and help narrow The valuation gap between the United States and Chinese technology stocks or semiconductor stocks is as high as 66%.

Goldman Sachs maintains its overweight rating on the MSCI China Index. It is expected that the index will rise by 14% to 75 points this year based on 66 points on the day of the report release, and the increase will even reach 28% under optimistic expectations.

In terms of A-shares, Goldman Sachs analyzed that A-shares have a relatively high weight in hard technology, but in recent years they have also actively deployed AI application fields, that is, soft technology. Therefore, A-shares will also benefit from the development of AI soft technology, and stocks in the soft technology field will be more leading in the market. Goldman Sachs emphasized that at present, China's policy cycle has transitioned from expectation to implementation stage, and details and actions are the key elements to stabilize growth and support corporate profits, and will push the stock market to rise further.

In addition, Deutsche Bank said that global investors will recognize the competitive advantages of China's manufacturing and service industries this year, and the launch of DeepSeek is more like China's "Sputnik" moment, and the valuation discount of Chinese stocks will disappear.

Deutsche Bank emphasized that at present, the trading valuation of MSCI China Index is lower than that of global indexes and close to the low end of its valuation range. With the global expansion of Chinese enterprises, this valuation discount will return to a premium at some point, and force investors to quickly turn to China in the medium term, which will make it difficult to buy Chinese stocks without raising the stock price. Deutsche Bank said that global investors generally underweight Chinese assets and need to adjust their investment portfolios in the future to avoid missing growth opportunities in the Chinese market.

"The global focus on DeepSeek could spur investors to reassess China's innovation capabilities, which in our view could be a catalyst for a reassessment of Chinese stocks this year," HSBC analysts wrote in a note.

In view of violent market fluctuations, investors can also consider hedging with option strategies such as bear market call spreads.

What is a Bear Call Spread Strategy?

A bear call spread is an options strategy in which options traders expect the price of the underlying asset to fall for some time to come, the trader wants to short the underlying and wants to limit trading to a certain risk range.

Specifically, the bear market call spread is achieved by buying a call option at a specific strike price while selling the same number of call options with the same expiration date at a lower strike price.

Specific cases of shorting YINN

To short YINN as an example,$Triple Long FTSE China ETF-Direxion (YINN) $The current price is $35.72. Assuming that investors expect to fall to around 30 in March, investors can use the bear market spread strategy to short YINN at this time.

Step 1: Sell the call option with an exercise price of 30 expiring on March 14 and get a $600 premium.

Step 2: Buy a call option with the same expiration date and an exercise price of 40, which costs premium $205, and the bear market spread is established.

• Sell a call option: The exercise price is US $30, and premium is US $600.

• Buying a call option: The exercise price is $40, and premium is $205.

Net premium income:

Total premium revenue = 600-205 = $395.

Maximum profit:

At expiration, as long as the price of YINN is $30 or below, both the call option sold and the call option bought will be voided, and the investor will retain the net premium income of $395 as the maximum profit.

Maximum loss:

When YINN's price is $40 or more:

• A $30 call option sold will incur a loss = (40-30) × 100 = $1000

• Excluding premium revenue of $395, the maximum loss is therefore $1000-395 = $605.

Break-even point:

The breakeven point is: 30 + 3.95 = 30 + 3.95 = $33.95.

This bear market call spread strategy takes profits when YINN falls to or below $30 and assumes maximum losses when the price rises to or above $40.

The main advantage of a bear call spread is that it reduces the risk of short trading (buying a call at a higher strike price helps offset the risk of selling a call at a lower strike price). Because if the stock moves higher, there is theoretically unlimited risk in shorting the stock, and the risk of shorting using a bear market call spread is much lower than shorting the stock directly.