It has been a horrid start to the week for China’s equity markets as the market doubts the ability of Beijing to prevent a rout. The Shanghai Composite recorded its second largest sell-off in history on Monday, despite recent moves from Beijing to prevent such an event from happening. The index fell a staggering 8.5%, its sharpest slide since February 2007 when it fell around 8.8%, as leveraged retail investors fled the volatile market.
The sell-off raises a lot of questions about the ability of Beijing to calm the market. It used everything from conventional monetary policy to actually baring selling by large corporates; the response has also included a ban on short selling and loans to brokerages from the PBoC. However, these measures haven’t been as effective as Beijing would have liked and have caused some capital to leave the markets, largely due to the increased risks associated with investing in manipulated markets.
The sell-off continued today, with the Shanghai Composite down over 5% at one stage before briefly crawling its way all the back to the black. Some market commentators are attributing the bounce back to PBoC-backed funds buying big. Yet, there’s still a huge amount of leveraged and scared capital in the market which could easily run for the exit once more, despite Beijing’s best efforts to prevent it leaving.
From a technical perspective, the Shanghai Composite is nearing support around 2,000, a break of which could see price test this month’s low around 1,865. On the upside, there’s a lot of room between price action and some resistance around 2,400 and then 2,500. In any event, we’re expecting a wild ride for China’s equity markets.
Shanghai Composite
Source: FOREX.com
Recommended Content
Editors’ Picks
EUR/USD clings to gains above 1.0750 after US data
EUR/USD manages to hold in positive territory above 1.0750 despite retreating from the fresh multi-week high it set above 1.0800 earlier in the day. The US Dollar struggles to find demand following the weaker-than-expected NFP data.
GBP/USD declines below 1.2550 following NFP-inspired upsurge
GBP/USD struggles to preserve its bullish momentum and trades below 1.2550 in the American session. Earlier in the day, the disappointing April jobs report from the US triggered a USD selloff and allowed the pair to reach multi-week highs above 1.2600.
Gold struggles to hold above $2,300 despite falling US yields
Gold stays on the back foot below $2,300 in the American session on Friday. The benchmark 10-year US Treasury bond yield stays in negative territory below 4.6% after weak US data but the improving risk mood doesn't allow XAU/USD to gain traction.
Bitcoin Weekly Forecast: Should you buy BTC here? Premium
Bitcoin (BTC) price shows signs of a potential reversal but lacks confirmation, which has divided the investor community into two – those who are buying the dips and those who are expecting a further correction.
Week ahead – BoE and RBA decisions headline a calm week
Bank of England meets on Thursday, unlikely to signal rate cuts. Reserve Bank of Australia could maintain a higher-for-longer stance. Elsewhere, Bank of Japan releases summary of opinions.