From ‘Big Short’ to ‘Big Squeeze’: How China’s Unexpected Stimulus Caught Wall Street Off Guard

The 'Major Bet' against China has turned into a 'Significant Pressure' that took Wall Street by surprise. Worldwide investors, who were betting against China, are now in a rush to adjust their portfolios to a 'more sensible level', according to financial analysts.

Wall Street is hustling to keep pace following an unexpected surge of economic stimulus from Beijing, which triggered a buying spree in both Hong Kong and mainland China's stock markets, leaving those betting on falling prices unprepared.

Morgan Stanley stated in a client note on Monday that Chinese stocks are predicted to increase by a minimum of 10% in the immediate future due to further government stimulus measures. Concurrently, UBS has raised its end-of-year projection for the Hang Seng Index, a key benchmark, by 7% to 22,100.

Nomura, Japan's largest broker, has likewise increased its year-end goal for the MSCI China Index from 59 to 65, following the actions taken by China and the unexpected massive rate reduction by the Federal Reserve on September 18.

The feeling is starkly contrasted from merely a fortnight ago when betting against Chinese shares was one of Wall Street's most favored moves, right after investing heavily in the reputed 'magnificent seven' tech shares, says Michael Hartnett, the main investment strategist at Bank of America.

The decision to bet against China while its economy is declining has led to a significant strain due to an unforeseen rally stimulated by financial aid, as stated by Hartnett in a message to his customers during the weekend.

"Market predictions have been firmly corrected, and faith in investors has been greatly reinstated," according to the recent solid policy indications, stated Thomas Fang, the head of global markets in China for UBS.