Jun 03, 2024

Chinese stocks dipped after some investors took profits on the recent rally.

CH 50 – Daily Chart

CH 50 – Daily Chart 

The China 50 index may want to test the downtrend resistance line at 12,200, broken in early May. Finding support there would allow for another push higher. 

According to data compiled by Bloomberg, equity ETFs in Shanghai and Shenzhen suffered a combined withdrawal of $4.2 billion in May. That was more than investors had invested over the previous two months. 

“Much of the inflows into stocks in the past weeks could have been ‘fast money’ betting on anticipation of property policies,” said James Wang, head of China strategy at UBS Investment Bank. “There may be an urge to sell” as the stimulus was weaker than expected, he said. 

Despite some recent selling, market breadth has improved in the Chinese stock market. 

Since January, the near 30% surge in the MSCI China Index pushed around half of its constituents above their 200-day moving averages. That has been a good omen, with the proportion usually widening to 80% over the next few months. 

In contrast, the United States market rally has been built around the so-called Magnificent Seven, with stocks like Nvidia and Microsoft making up much of the rally in indices. 

Consumer technology and financial firms were the best performers in the MSCI China recovery from a January low, while property and materials shares are up more than 40%. After the further stimulus, there’s now an expectation for a broader range of sectors, such as equipment makers, exporters, and property stocks, 

“Small- and medium-cap stocks will benefit as the recovery spreads, given the improving macro credit risk profile along with an economic recovery,” said Chi Lo at BNP Paribas Asset Management Asia. 

Wall Street’s weakness also weighed on Asian shares during Friday’s session. However, the US indices rallied hard into Friday’s close, and Asian stocks may open with strength.

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