After U.S. and China 'panic,' world market cap set to hit new record, says Bank of America

By Steve Goldstein

Best way to play China rally is industrial metals, materials and international stocks, say strategists

Global stock-market capitalization is set to surpass its highest level in three years after the Federal Reserve cut interest rates and China began stimulating its economy this month.

Citing data from GFD Finaeon, Bank of America said world stock-market capitalization is set to overtake the record $123 trillion reached in Oct. 2021.

A fund that seeks to track both U.S. and global stocks, the Vanguard Total World Stock ETF VT, already has surpassed its 2021 peak and on Thursday reached a new record high.

Bank of America strategists led by Michael Hartnett said "markets stop panicking...", a phrase that is usually combined with, when policymakers do.

China's monetary stimulus actions this week followed a half percentage point interest rate cut from the U.S. Federal Reserve.

The Bank of America strategists said the current Wall Street conviction trades are long gold, long technology stocks, short U.S. Treasurys and short China, the latter of which explains why Chinese assets rallied so much this week.

The Hang Seng HK:HSI soared 13% this week in its best weekly period since 19989.

The Fed cutting rates with no recession is positive for risky assets, and investors are of the view that the actions by the Fed and China are sufficient policy easing to short-circuit recession risk, the strategists said.

The strategists said the best way to play China is with industrial metals, materials and international stocks, as long as the stimulus means the floor for the China's 10-year yield is 2%. On Friday, the Chinese 10-year BX:AMBMKRM-10Y yielded 2.17%.

-Steve Goldstein

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09-27-24 0756ET

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