China could face a short term sell off caused by China’s deleveraging campaign with
the renewed squeeze of the shadow banking sector implemented following the Party Congress in October. It
has caused the 10-year renminbi
government bond yield rising to 3.93% on
Wednesday. The aim is to squeeze out shadowy loans and encourage more loan growth
to the real economy. China Securities Regulatory Commission (CSRC) recently
suspended approval of new mutual funds that plan to allocate more than 80% of
their portfolio to Hong Kong-listed equities. It could result in a short term cooling of South Bound fund inflows, further
aggravating by the normal seasonal decline in A share trading volume in the run
up to Chinese New Year in 16 February.
Indeed that growth scare has already begun, The Caixin/Markit
manufacturing Purchasing Managers' Index came in at 50.8 for last month — the
lowest level in five months Economists in a Reuters poll had expected the index
to read 50.9 for November, lower than 51.0 the previous month.
On 27 Nov, this blog predicted that the Shanghai A Index
has peaked and is due for a sharp correction just from a technical perspective
. Indeed the Shanghai Stock Exchange A Index (SSE A) underperforming the MSCI
Asia Index and trading at a 5 month low. The SSE A index has broke its uptrend
channel line, with immediate support at 3445 , its is likely to trend lower in
the near term towards 3355 and it will drag the Hang Seng lower.
All posts and charts are for educational and illustration purposes only
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