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Chinese stocks seeing signs of profit-taking

Chinese stocks swung between gains and losses over the past two days, which reflected on the choppy trading sessions.

Image of Janet Yellen
Source: Bloomberg

Once again Hong Kong shares managed to push through the day to close on a slight positive – just barely, while other Chinese indexes ran out of steam.

The Hang Seng closed 0.15% higher at 25,159 points and  stayed above its uptrend line as well as the resistance-turned-support level from last week’s high at 25,067.

The Shanghai Composite was lower by 0.23% at 2,240 points, China H-Shares fell by 0.35% to 11,055 points and China A50 was down by 0.6% at 7,226 points.

Investors holding back

Investors have been pretty bullish on Chinese stocks due to their relatively cheaper valuations and expectations of upcoming stimulus measures. We saw them trudge ahead despite a poor set of data earlier this month from lower foreign direct investments, weaker credit growth, and falling property prices.

However, looking at yesterday’s weaker close, it seems like some investors have started to cash out on their recent rally and holding back ahead of the Jackson Hole symposium in the US tomorrow. Janet Yellen is expected to give an economic outlook in her debut speech as the US Federal Reserve Chair.

There has been a relative lack of market catalysts over the past few days, but that could change today when we get a reading of China’s economy. At 9.45am (Hong Kong/Singapore time), we will see the initial estimates of HSBC China Manufacturing PMI for August.

The market consensus is for activity to be relatively flat from the prior month, for a print of 51.5 from last month’s 51.7. A good reading should help Chinese stocks with another positive close, in what’s likely to be another choppy session and more profit-taking.

Aggressive traders could consider looking for a pullback in the Hang Seng to support around the 25,060 level for an entry, or wait for a more conservative pullback to 25,000.

Ahead of the Hong Kong open

Last night, we heard from the FOMC minutes that interest rates are likely to stay low longer with the slack in employment. That lifted US equities and should kickstart the Asian trading session on a positive note.

We are calling for the Hang Seng or Hong Kong HS50 to open 0.21% higher at 25166.25 points, and the MSCI Singapore to open 0.23% higher at 378.59 points.

Hong Kong HS50
Click to enlarge

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