Chinese stocks recovered from two days of selling after manufacturing activity slowed to a three-year low in November.
CHINA 50 – Daily Chart
The CHINA 50 index has resistance at the downtrend line from the October high. A failure could target the 14,760 level, but a breakout above the downtrend line would return the setup to a bullish one.
China’s factory sector slipped back into contraction, according to a private survey released this week, highlighting continued weakness in domestic demand. The RatingDog China General Manufacturing PMI, compiled by S&P Global, fell to 49.9 last month. That was a surprise for analysts after expectations of 50.5 in a Reuters poll, and was a reversal from September and October, when the private index showed expansion. The private PMI data followed the official Bureau of Statistics reading released on Sunday, which showed factory activity slowing for an eighth consecutive month.
Despite an increase in export orders, which rose at the fastest pace in eight months, the broader sector showed signs of strain. New domestic orders were flat in November, halting production growth. Economists have now warned that China’s growth could slip below 4.5% in the fourth quarter, down from 4.8% in Q3. Trade tensions with the U.S. have eased, but global growth remains strained.
Overseas demand for China shares has returned this year and should remain due to concerns over valuation bubbles in Western countries.
“We believe we are just at the beginning of a gradual reallocation process by foreign investors coming back into China,” said Morgan Stanley chief China equity strategist Laura Wang.
“I think what they have seen so far through the course of this year has already been encouraging enough for them to gradually change their mind”.
A record HK$1.38 trillion ($177 billion) was also invested from China into Hong Kong, where capital markets have jumped back to life.
