A50 Index Futures Soar Overnight, Bitcoin Breaks $71,000, US Stocks Poised to Continue Upward Trajectory

A50 Index Futures Soar Overnight, Bitcoin Breaks $71,000, US Stocks Poised to Continue Upward TrajectoryThe A50 Index futures surged overnight, opening with a straight-line climb and gaining over 1.5%

A50 Index Futures Soar Overnight, Bitcoin Breaks $71,000, US Stocks Poised to Continue Upward Trajectory

The A50 Index futures surged overnight, opening with a straight-line climb and gaining over 1.5%. In tandem, popular Chinese stocks listed in the US also saw a collective surge, with Nio rising over 6% and Alibaba and Pinduoduo gaining over 3%. Bitcoin also witnessed a dramatic rally, breaking through $71,000, resulting in over 60,000 liquidations in the past 24 hours.

This surge in market sentiment is closely linked to the latest developments in the local government debt reduction plan. The Ministry of Finance is reportedly planning to "add a larger-scale debt limit in a one-off manner to replace local government outstanding implicit debt," marking the most forceful measure against local government debt in recent years. The aim is to alleviate pressure on local governments and encourage the transformation of more outstanding implicit debt into explicit debt. Experts predict that the new round of debt replacement could reach a scale of 6 to 10 trillion yuan.

Local governments could restart the issuance of "replacement bonds" or continue to issue "special refinancing bonds" and "special newly added special bonds" to mitigate the risk of local debt defaults and empower local governments to allocate more resources towards economic development and social welfare.

However, A-shares experienced a correction, with the Shanghai Composite Index dropping over 1% and falling below the 3,300-point mark. The ChiNext Index fell over 2% and also breached the 2,200-point barrier. The CSI 50 Index lost its 2,700-point gain, while the Beijing 50 Index continued its strong rally, rising 3.68%. Over 4,200 individual stocks declined, with trading volume expanding to 2.11 trillion yuan.

Despite recent pullbacks in US stocks, Scott Rubner, managing director at Goldman Sachs, believes that a short-term correction in US stocks is unlikely to occur. He predicts that US stocks will continue to rise through the end of the year, aligning with seasonal patterns. Historically, US stocks have tended to perform strongly in November and December.

Rubner further highlights that the elections could trigger a "risk asset windfall event," leading to an immediate surge in the market as "fear of missing out" (FOMO) drives investor interest. In such a scenario, Rubner anticipates that the largest gains will be observed in currently undervalued and unpopular sectors and themes.

However, over the next two months, Rubner believes that seasonal shifts in company buybacks and investor positioning might have a greater impact. Retail investors and private wealth managers typically adjust their portfolios in January, April, and November. Investors holding Treasury bills might seek to reinvest maturing proceeds elsewhere, and the stock market appears to be a logical destination.

Since 1928, the median return for the index during the period between October 27th and December 31st has been 5.2%. In election years, this number rises to 6.3%. If US stocks follow past performance, the final two months of the year could be particularly lucrative.

In summary, despite A-shares experiencing a correction, the overnight surge in A50 Index futures and Bitcoin, alongside the collective rally of popular Chinese stocks listed in the US, indicate a positive market outlook on future economic prospects. The implementation of the local government debt reduction plan is projected to inject further confidence into the market. Goldman Sachs' perspective also suggests that the probability of US stocks continuing their upward trajectory until the end of the year is high. Investors should closely monitor market developments and capitalize on investment opportunities.