China might be described as a Chicken Little play for stock investors. Whenever fears of sovereign debt defaults are rising — the market equivalent of the sky falling in — investors flock to sell stocks.
The correlation has been so strong since mid-2015 that the spreads on credit default swaps for Chinese sovereign bonds — which measure risks of default — have been a near infallible pointer for share prices on the Hong Kong stock market.
But these days the perceived risks of collapsing skies are in retreat, giving investors licence to buy into China’s grand economic transition.
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