Transcription
The Central Bank of China is withdrawing liquidity from the system. Can Kevin Walls raise interest rates? The main threat, these mega-placements of shares like the one we have seen from SpaceX or the one that is planned from OpenAI, Anthropic, and also the attempt to raise resources by Google and by Meta, what they represent in reality is that they drain liquidity from the financial markets, drain liquidity from financial instruments, and direct that liquidity towards the real sector. And therefore, it slows down the growth rate of stock market indices.
Furthermore, we must take into account that the United States economy remains strong. According to the latest weekly estimate made last June 12 by the Federal Reserve Bank of New York, you can see that the United States economy may be growing at a rate of 2.7%, even slightly higher than the 2.6% of the previous week. Therefore, you can see that there are liquidity drains here.
Well then, what is the Federal Reserve system doing? Well, I believe that what the Federal Reserve system is doing is compensating for those liquidity drains with liquidity injections. It is clearly appreciated that the Federal Reserve system with Powell and now with Kevin Walls is trying to inject liquidity into the system to compensate for the drain that these mega-placements entail and also for the acceleration of the growth rate of the United States economy. For this reason, their objective is clearly seen to be to maintain ample, but not excessive, bank reserves.
Well, and what does this imply for the future? Well, man, for the future, what it implies is that indeed the earnings season has practically concluded, I think some company is missing, but it is seen that results have grown at a good pace and as for the liquidity front, well, there we don't have special help from the Fed. What it is doing is simply maintaining an ample level of bank reserves. If the SP500 wants to keep rising, someone will have to put liquidity into the system.
Now then, what is happening with China? Well, when one analyzes the situation in China, we find that four facts are coinciding in time. The first, if we look at the large North American corporations, if we look at the performance of the CSI 300, as you can see, although it shows an upward trend, it presents a divergence with respect to the behavior of the SP500 or the Nasdaq. North American tech companies, the large companies are rising according to a stronger trend, while Chinese tech companies or large corporations, there is no divergence among them.
But also simultaneously we find that Bitcoin, which is in a corrective phase, is relatively weak, but the essence is that we see a relatively weak crypto market, a relatively weak gold market, especially when cryptos are very sensitive to the movement of liquidity.
But in addition to these two facts, we can verify, as you can see in this chart, that the yuan's quotation against the dollar has been appreciating since the lows of April 2025. Agreed? And this, what message is it sending us? I believe the message is loud and clear. The Central Bank of China is withdrawing liquidity from the system. That clear.
Then, at a global level, liquidity is contracting without prejudice to the United States having sufficient liquidity, so in the United States there is no liquidity problem, it does not increase. And at a global level, what we are seeing is that China is contracting liquidity. Yuan on the rise against the dollar, Bitcoin and gold weak, and companies in its economy, the large corporations behaving relatively weaker than North American companies. Good.
Well, and this behavior of the Central Bank of China will be temporary. Let me explain well, we are witnessing a pause in this process of liquidity injections. When will the Central Bank of China return to injecting liquidity into the system and in that way raise cryptos, raise gold, and raise stock markets decisively at a global level? From the levels they are at now.
The following fact catches my attention. Pay attention. Firstly, the economy of China is exists, uh, in China we observe a high level of indebtedness. Therefore, it would be logical for the Central Bank of China to favor monetary inflation to degrade the value of debts.
Furthermore, if you look at this chart, you will see that the yield of the American bond, sorry, the yield of the Chinese 10-year bond is on a downward trend. Agreed? What this is telling us, then, is that the Chinese economy is not strong. It is not strong. And then, of course, it is shocking, it is surprising that the Central Bank of China is withdrawing liquidity from the system when its economy is weak. Surely it is fully aware of this fact, obviously, and surely it will be telling the Chinese state banks to try to lend more money to relaunch Chinese economic activity.
The news in the OPLA office is out. And out because we have statistically proven that they give us more problems than solutions. And today we are going to bring the paradigmatic case. China. I don't know about you, but for me, only good things come out of China on Instagram, robots, automatic cars, and sincerely I have many Chinese friends, former colleagues, and I truly hope from the bottom of my heart that they do very well, but we are not going to use this to invest. We owe ourselves to the price and in the price we have to look for demand and truly good demand from institutions, because when institutions buy, the price goes up. So today I would like us to cover the ETF that covers the general economy of China, which is ICHN from iShares. So let's take a look.
As we can see in the chart, from more or less September 2025, the Chinese economy seems to have been slowing down, that it has been weakening. So in general, the further away, the better. But beware, this does not mean that on specific occasions our system has not given us possible entries, for example, in Alibaba. What has it given us? But one thing is to have losing trades and another thing is not to control losses, and that cannot be allowed. We, for example, at OPLA attempted an entry in Alibaba, but quickly the investment thesis proved incorrect and we left. The most important thing is to preserve capital, but as we have said other times, since it is falling, we are going to take the opportunity to study.
So today in our Freedom 24 watchlist we have added two ETFs related to the Chinese economy. Why have we chosen Freedom 24? To us, Freedom 24 seems like a very complete platform, very complete and with a simple interface. Complete, why? Because it has the products we need, ETFs, international UCITS, but it also has the tools we use most, watchlists, trading from the chart. And one thing that seems great to us is that it has technical support in Spanish and also allows you to have a personal manager who, if you have any questions, will help you without a problem.
Well then, today in our Freedom 24 account we have created the China list and have added these two ETFs. The first, the one that has ICHN from iShares as its ticker, and the second, the one that has KWEB from KraneShares as its ticker. The first has a more general exposure to China's economy and the second specifically to the technological part of the economy. But at the end of the day, almost 30% in both ETFs is represented by Alibaba and Tencent. So one option would be to invest directly in these stocks. But if we want a more general exposure, we can use ICHN or KWEB.
Which one do we choose? Let's see a comparison of ICHN and KWEB. As we can see in the chart, the two practically move the same because most of their holdings, 30%, as we have said, are the same. However, we can see how KWEB has more volatility, significantly more volatility, and the drops are much more pronounced. And what does this mean? Well, if we have a precise investment system and we psychologically withstand volatility well, because the most important thing is to sleep at night, KWEB can be an option for us, but if not, we always have ICHN.
What other variable is important when choosing? Well, the costs of the ETF, but in Freedom 24 it is simple because with one click we can see the document for each of the ETFs and in this case we can see how the costs of ICHN are practically half that of KWEB, and finally we must take into account what currency they are quoted in, because although they are quoted in European markets, they can be quoted in dollars.
Well, in our case you know that we prefer to choose ETFs that are quoted in the same currency as our portfolio, in this case euros, but these two ETFs are in dollars. It's not ideal, but it's not a problem either because in Freedom 24 you can perfectly change currency transparently and be able to trade both KWEB and ICHN. So if you want to replicate this operation, I'll leave you a link in the description so you can open an account in Freedom 24, which is totally free and totally online.
The main threat is the conclusion they reach or the conclusions reached by the members of the FOMC. In this FOMC meeting, as you well know, it is Kevin Walls' debut as president of the Federal Reserve system and he faces a process of interest rate hikes. For this reason, it is logical to think that the course of inflation will be debated. Last week inflation data was published and what did we see? Well, that real inflation increased significantly. The realized inflation rose fundamentally as a consequence of energy prices, more specifically the price of gasoline and even more specifically due to the sharp rise experienced by airline tickets. Practically 60% of the inflation increase was due to energy. Agreed? Now then, core inflation practically fell a little. This fact makes me think that this increase in inflation is temporary and in this sense, the members of the FOMC must take it into account.
Because if it is now true that a peace agreement is finally reached, it is very probable that the price of oil will fall, but the most important thing is that the price of distillates falls. I am thinking of gasoline, I am thinking of kerosene. Can Kevin Walls raise interest rates? That easy. I'm going to tell you. Well, man, he has it difficult, huh? And I'm going to explain why.
We are finding that the public debt to GDP ratio of the United States economy is 125%. The federal deficit, federal public deficit is in the order of 6-7%. Agreed. And what they are paying in interest already represents almost half of the federal public deficit. If now interest rates rise, what will happen? Well, evidently it will worsen the fiscal deficit. Agreed? Undoubtedly, it will become more evident every day that the growth of North American public debt is unsustainable. And if interest rates rise, it can probably cause financial stability problems. Therefore, before raising interest rates, he will have to think about it a lot, a lot, a lot, a lot.