Strategist who correctly predicted the rise of A shares- There is still room for further gains

Lars Naeckter, the head of Asia-Pacific equity derivatives research at Bank of America (BofA), who accurately predicted the rise of A-shares, believes there is still potential for further upward movement. Many investors are positioning themselves for this.

Naeckter noted that since China announced a series of economic stimulus measures, demand for bullish bets has surged. The costs for call options relative to put options for Hong Kong-listed A-shares and the U.S. ETFs tracking these stocks have approached their highest levels since at least 2008.

While the Hang Seng China Enterprises Index has recently seen a retreat of nearly half of its gains, Naeckter pointed out that, given the shift in China’s policies and investors’ eagerness to re-enter the market, there may still be room for the market to rise. He recommended buying call options when the index was near its lows in early September, a move that has since yielded returns exceeding 360%.

In an interview this week in Hong Kong, Naeckter stated, “Opportunities remain. As we weigh the uncertainties around the scale and timing of the ongoing stimulus measures, this market holds significant upside potential moving forward.”

He added, “There will continue to be friction between the U.S. and China, and uncertainties surrounding this issue will persist. However, for market participants, the bigger questions lie in China’s policies and the upcoming meetings.”

The Standing Committee of the National People’s Congress is set to convene, and any additional fiscal budgets or debt quotas will need their approval.

Since late September, A-shares have experienced dramatic volatility akin to a rollercoaster ride. A series of policy initiatives initially sparked optimism in the market, which has since cooled as doubts rise over whether Beijing is willing to reinforce measures to reverse the economic and market conditions without immediate details on fiscal spending plans.

During a derivatives trading forum in Hong Kong this Monday, Peter Yip, head of foreign exchange and emerging markets at JPMorgan, highlighted that interest in Chinese hedging is increasing as uncertainties surrounding China’s stimulus plans, global rate-cut prospects, and the upcoming U.S. elections come into play.

Investors are also keen to avoid a repeat of the 2015 scenario when A-shares plummeted after reaching a seven-year high amid underwhelming economic growth. Naeckter remarked, “There’s still a degree of skepticism, which is a good thing because it suggests that we might not see an excessive rally.”