China bears regain control

Asia continued to see good recovery today despite Greece missing the IMF deadline for a EUR 1.55 billion payment.

China Shanghai
Source: Bloomberg

What is more interesting is that China bears returned to the field and swept aside the bulls.

Chinese stocks resumed their decline and erased yesterday’s gains.

The CSI 300 tumbled 4.9%, with the A50 following close behind at -4.4%.

The Hong Kong bourse is closed today, so that may have taken some liquidity off the mainland markets.

Granted that June PMI reading is not particularly impressive, it is unlikely to be the cause of the reversal. Although it may have reinforced signs of stabilisation in the economy, which gave less justification for more stimulus measures.

I feel the more plausible reason is the lack of updates on the potential stamp duty cut and IPO suspension, as supportive initiatives for the recent stock market slump. Given the flighty and impatient nature of retail investors, the silence on more action could have prodded them to pare risks in the equity markets.

The persistent fall in margin debt may also have contributed to the pullback. Outstanding margin lending on the Shanghai Stock Exchange fell for a seventh-straight day on 30 June to CNY 1.34 trillion, the longest southward stretch in three years.

Another theory is that Chinese investors are looking at booking profits amid the increasing uncertainty over the lifespan of the recent bull run. With 20 out of 28 industries raking in 50% of capital appreciation, based on Wind, it may be a good time to realise some of the paper profit into cash.

There is no doubt that China is a very different beast from other equity markets. The fact that it is still the second largest stock market by market capitalisation, notwithstanding the recent sell-down, makes it a compelling market to follow.

What investors have to keep in mind is that it is not quite certain how the recent bearishness will playout. Any policy intervention is expected to have a very short-term effect, although it may still be effective in stemming the southward tide. Still, the Chinese authorities are keen to manage the capital markets and steer them towards stability. Unfortunately, this will take more time and patience than what the average investor would allow.

Singapore goes back to familiar orbit

Once again, Singapore stocks failed to inspire to greater heights. The Straits Times Index (STI) was trapped within the 3300-3350 band, although we know there is demand lurking below the 3300 handle, judging from the strong rebound on Tuesday.

Furthermore, the percentage of companies who are above their 20-day moving average jumped to around 40% yesterday, from below 20% previously, indicating more counters participate in the recent recovery.

Nonetheless, unless I see more than 50% participation, it is unlikely for the index to advance. Some positive news pertaining to IPO may, however, inject some interest into the moribund domestic markets.

Apart from the proposed public listing of Canadian insurer, Manulife, to the tune of USD 450 million, local news reported that a handful of Israeli firms are considering to list on the Singapore Exchange’s Catalist board over the next 12 months.

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