- 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
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Foreign 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