Worst China Stocks Selloff Since February Caps Brutal Reversal
Comment of the Day

July 16 2020

Commentary by Eoin Treacy

Worst China Stocks Selloff Since February Caps Brutal Reversal

This article by Jeanny Yu for Bloomberg may be of interest to subscribers. Here is a section:

The impact showed in Wednesday’s smallest increase in stock leverage since late June. The CSI 300, which was up almost 17% for the month on Monday, has now given up half those gains.

An attack from the People’s Daily newspaper on Moutai was taken as another sign of Beijing’s desire to slow the recent run-up, after government-backed funds sold shares or announced plans to so in the past few days. Increasing tensions with the U.S., the central bank’s clampdown on easy money and a drop in retail sales are also adding up as reasons to start selling.

Data Thursday showed the Chinese economy returned to growth in the second quarter, expanding a better-than-expected 3.2%. While industrial output rose 4.8% from a year earlier, retail sales shrank 1.8%, weaker than a projected 0.5% increase. That suggests the recovery is still largely industry-driven, with consumer sentiment remaining fragile.

“Retail sales came worse than expected, which hurts sentiment towards some consumer stocks,” said Daniel So, a strategist at CMB International Securities Ltd. “A stabilizing economy means the scale of monetary easing may be smaller than expected. Ample liquidity was one of the key reasons for markets to jump.”

Overseas investors continued to trim their holdings of mainland-listed shares, selling nearly $4 billion worth of the stocks through exchange links in the past three days.

Eoin Treacy's view

The CSI 300 pulled back sharply today to test the upper side of the underlying range. This represents the first area of potential support so evidence of demand returning in the next day or two will be required if the benefit of the doubt is to be given to the breakout.

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