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  • In the past few months, we have seen that Chinese 'liquidity' has been contracting sharply, increasing investors' concern over the sustainability of the current market rally, especially in risky assets.
  • Interestingly, the Li Keqiang Index, which is an economic measurement index that tracks China's economy using three indicators - railway cargo volume, electricity consumption and loans disbursed by banks - seems to also have peaked in February this year, which corresponds to the high reach in Chinese equities (CSI 300 Index is down 12% from its high reached in mid-February).
  • It is very common that macro economists have their in-house measures that track Chinese economic activity as the GDP and industrial production numbers have often been criticized.
  • This chart shows that the Li Keqiang Index has generally led copper prices by 6 months in the past 15 years (Index inception).

Source: Bloomberg/MNI

  • Net specs positions on copper have significantly fallen since the start of the year as investors are worried that the global reopening will not be enough to offset the contraction in Chinese liquidity (chart below).
  • 'Smart money' investors seem to follow China liquidity and therefore have been reducing their exposition to risky assets in recent months.

Source: Bloomberg/MNI