Risk sentiments take a beating

With so many goings on this week, the market is behaving schizophrenically, swinging from end to end.

China national flag on a ferry crossing the Chang Jiang river
Source: Bloomberg

The European and US markets were sold off heavily as Greece returned to the foreground. It appears traders are getting fed up with the Greek antics amid news that the International monetary fund may cut off bailout funding.

Mixed data in the US did not help sentiments. Investors did not know what to make of the good ISM numbers but wider-than-expected trade deficit.

Surprisingly, the euro remains resilient. It is staying afloat above $1.10, as it is possibly assisted by upgrades to the EU’s growth and inflation estimates. A slippery greenback on the back of poor trade numbers in March also kept the post-RBA AUD defiance alive.

Meanwhile, renewed expectations of narrowing supply helped WTI light regain the $60 mark. Brent crude was also lifted to $67-68. However, the underlying demand and supply conditions still remain with Iranian oil potentially allowed to add to the supply glut as part of the conditions for a nuclear deal.

Are Chinese equity bulls faltering?
Speculative trades have benefited Chinese stocks for a number of months now, but as most things go, speculation can be a double-edged sword. A confluence of (mostly speculative) factors hit Chinese equities hard on Tuesday, with the SSEC plummeting 4.1%, which was accompanied by equally sharp falls in CSI300 (-4%) and A50 (-3.9%).

First, a raft of IPOs starting from yesterday until 11 May 2015 were expected to pull an estimated $376 billion out from the equity markets as investors sell current holdings to fund new share plans. Second, rising expectations of more tightening measures to rein in the equity bulls. Third, rumours of an increase in the stamp duty for stock trading to be implemented in Q3.

Are the equity bulls losing their footing after a near 90% surge over the past six months? I do not think the Chinese bull market is coming to an end, but yesterday’s tumble could signal a market correction is in play. Looking at a longer timeframe, this could help the market adjust to a “slow bull” mode, preferred by regulators.

What’s on today?
Looking ahead to Asia open, there is little in the way of Asian data to excite the market. China and India services PMI numbers are scheduled although Australia retail sales print could stoke some interest. Japan markets remain shut and will resume on Thursday.

Weak sentiments should dictate markets in Asia on Wednesday, we are calling the CSI300 4583 -13, Hang Seng 27713 -42, Nifty 8319 -5, and MSCI Singapore 390.21 -0.2.

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