- The bullish momentum on Chinese indices has definitely waned as recent data indicated that the post-pandemic opening of the economy is not proceeding at a pace that would please the bulls;
- Tomorrow, China's manufacturing and services PMI data will be released (03:00), which could be another catalyst for volatility on Chinese indices;
- The People's Bank of China (PBOC), despite low inflation, still has not implemented a stimulus package to support the economic recovery;
- The Hang Seng China Enterprises Index (CHNComp) went from being one of the biggest beneficiaries of the Q1 equity price rally to a laggard, losing nearly 8% on ytd measures;
- Foreign funds sold the most shares of Chinese companies since October 2022 amid uncertain relations between Washington and Beijing;
- AI and technology companies posted recent gains, but they were too modest to lift the strength of the overall benchmark. Regulatory uncertainty in the country is still present;
- It seems that breaking the deadlock over the Taiwan issue or China's stance on the war in Ukraine and other sensitive issues is still a long way off;
- A U.S. request for a mutual meeting of military commanders was rejected by Beijing. Recently, Taiwan's armed forces reported more Chinese warships maneuvers in the Taiwan Strait. Some investors are still concerned that the cooling of relations with the U.S. could herald an escalation in the context of Taiwan's new government elections in the fall.
The HSCEI index has already lost nearly 20% since this year's highs. Source: Bloomberg
Start investing today or test a free demo
Create account Try a demo Download mobile app Download mobile appForeign investment funds are reducing exposure to the Chinese stock market at a record pace despite its low valuations. Source: Bloomberg
The Chinese yuan has also recently been losing to the dollar and is near 6-month lows - pressure is being put on by the PBOC's lack of direct intervention and concerns about the domestic economy. Recently, the Bank of China has been pegging the yuan to the USD more or less in line with market estimates, and recently even raised it to 7.08 against 7.05 previously. Markets perceive the bank's stance as a signal of tolreance to further weakening of the yuan. 
USDCNH exchange rate, D1 interval. The CNH continues to weaken against the USD, key support can be found around 7.00 where the SMA200 and 38.2 Fibonacci retracement runs. Source: xStation5
CHNComp Index, W1 interval. On the main Chinese benchmark, the declining trendline is held, and the price has found its way back to levels last seen in November 2022 (and 2009 previously). On the weekly interval, we can also see a slowly emerging bearish crossover formation on the MACD. Source: xStation5
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.
