China has its own ‘liquidity’ tap

Low liquidity does not seem to bother the Chinese stock markets.

Source: China

News of a ‘fund connect’ between mainland China and Hong Kong last Friday injected a fresh impetus into the fiery-hot Chinese equities. Later on, the announcement by the National Development and Reform Commission (NDRC), the state planning agency, that more than 1000 infrastructure projects worth USD 318 billion will be developed with the private sector, further boosted the industrial stocks, in particularthose producing capital goods and transportation. Although there are concerns that the bull run in Chinese shares is not matched by strong economic growth, the uptrend momentum remains strong, with a number of drivers underpinning the rally. I maintain my bullish longer-term view of the Chinese markets but substantial pullbacks may materialise given its retail-driven nature. The 20-day moving average at 4723 in the CSI 300 Index may provide some support although the 14-day RSI indicates overbought conditions.

STI still plagued by low volume

The Straits Times Index extended higher above 3450 although beneath the mild gains is the lacklustre volume. The STI saw trade volume of 1.8 billion units worth SGD 596.6 million, which is the lowest one-day amount seen this year. Added to its low-volume woes was the closure of Hong Kong markets for Buddha’s Day. The local index has been seeing less activity this year, in part because of the lack of new IPOs to excite traders. The outperformance of regional markets, especially Chinese equities, has also drawn attention (and capital) away from Singapore. SGX maintained that there is a healthy pipeline of listing deals and once market conditions improve, the number of IPOs will pick up. Given the lack of news surrounding the successor to the SGX head, it is unclear how the strategies around developing new listings will pan out.

With major markets returning from their long weekend, liquidity should improve in today’s session. The dollar resurgence theme may persist in the session, especially if markets are optimistic about US data out today. Fed vice-chair Fischer echoed previous statements on Monday, stressing that policy will hinge on data not dates. Cleveland Fed president Loretta Mester, a non-FOMC voter, however said that firming inflation and solid employment growth may mean the time is near for the first rate hike.


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