Market Intelligence

Watch China

Author: Aleksandar Adamovic November 6, 2018

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By now everybody knows ‘our’ markets sold off because of the Chinese tariff situation. As we showed recently, China and Emerging Markets have outperformed the US markets, so the logic of the argument it is China’s ‘fault’ doesn´t really hold.

We have heard some interesting rhetoric coming out of China over the past 24 hours. What is even more interesting is the fact the Chinese markets have managed to hold here, despite the massive move higher during last week. We are not calling the low is in but would like to point out a few observations when it comes to China.

Below chart shows the CSI 300 index (orange) and the Shanghai Property Index (white). Note the recent outperformance of the property index. We saw a similar set up where the property index started outperforming back in mid-2016. After the property index started leading back in 2016, the entire Chinese market rallied.

The CSI 300 gained 35% during this rally that started back in mid-2016.

Yuan has been much debated and mentioned in media recently. If 7 is the big level or not has attracted many pundits to express their minds. The yuan looked very similar two years ago. The entire move started with a few rather volatile sessions back then. Let’s see what happens from here?

The easiest way to play the China trade is via the Chinese ETF, FXI US. Not the recent spike higher. We have so far turned right on the negative trend line and the 100-day average. It will be interesting to watch how this one trades here. A break above the trend line could reignite the bounce move.

Watch Chinese charts carefully here.

Source: charts by Bloomberg

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