A slow start to the year for the Shanghai Composite index has the potential to change with recent buying.
CHINA 50 – Daily Chart
The CHINA 50 index has set a base below key support and is set to move higher if it can clear the 13,000 level. That could target the 13,600 and 14,400 levels in the coming weeks.
Many retail investors in China helped to drive an early January slump with the top Chinese index marking its worst start to a year for a decade.
Markets had ample time to process the coming policies of Donald Trump and nothing new has driven the recent slump. Markets have been unhappy with the level of Chinese stimulus and maybe looking for more. However, the government may look to release new plans around the Chinese Lunar new year and boost sentiment.
Chinese stocks saw their first annual gain in 2024 after a three-year decline, driven by the pandemic lockdowns, property woes and a weak consumer.
Retail money makes up roughly 70% of China’s share trading, which is why a sell-off could trigger a sharp unwind of leveraged bets and losses which could hurt Beijing’s moves to boost markets.
The government needs a strong bull market to fund economic revival but another boom-and-bust would “destroy wealth, hurt consumption and harm China’s economy”, said Dong Baozhen at Beijing’s Lingtong Shengtai.
Analysts are worried that another sell-off would be another drag on retail investor confidence who have already shown pessimism with weak consumer spending.
Recent institutional behaviour saw hedge funds raise exposure to China during last year’s stimulus-led rally but soon backed off and global long-only funds “have stayed largely on the sideline”, Goldman Sachs said.
But with the market getting above the lower level support, it could be that we are setting up the next rebound and retail investors are often late to the party. The December Caixin Services PMI accelerated month over month to 52.2 from November’s 51.5. Mainland investors snapped up Hong Kong shares this week with over $6 billion worth of net buying via Stock Connect.
