Sep 01, 2023

Chinese stocks have been taking a beating this week, and they closed near a key support level on Thursday. If they don’t rally on Friday or Monday, they could be in for another big sell-off.

CH50 Daily Chart

CH50: Daily Chart

The market closed at 12,620 on Friday, with the next support level at 12,400.

The market’s inability to rally has resulted in cautious investor sentiment. While recent stimulus measures are expected to boost trading activity, the economy’s growth woes are making investors hesitant to bet on a quick turnaround. China’s local media has also urged investors to remain patient as the latest support measures take effect, with the Securities Times stating that investors should not doubt the recent moves.

Some investors think China needs to throw a lot of money at the economy, like it did in 2008, to boost confidence. Foreign investors bought Chinese stocks last week, but outflows this month through the trading links with Hong Kong are on track to hit a record.

“The stimulus is just a way to improve liquidity in the stock market,” said Xin-Yao Ng, investment manager of Asian equities at abrdn Asia Ltd. “But what’s really needed is fiscal stimulus to boost the real economy. Foreign investors generally agree that Beijing needs to provide a big stimulus to improve consumer and business confidence.”

Winnie Wu of Bank of America stated that the recent moves are “a good start in terms of rebuilding confidence, but they are insufficient” in the short term. She added that investors are fundamentally concerned about the economy, which is the fundamental problem in the property market, local government financing vehicles (LGFVs), the private sector, and employment.

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