Possible China economic recovery
boosting global equitiesThe Shanghai Composite Index staged a huge 6.1% rally yesterday and ignited a single day global stock market rally.What are the causes and implications of such a huge one day rally? In today’s report, we examine the key components of the Shanghai rally to determine whether the rally is sustainable and estimate its effect on the KLCI.
-a) China Rally : Rebound in Manufacturing Sector
The good news is that the China’s Purchasing Manufacturing Index (PMI) which is an indicator of the health of the manufacturing industry in China, has recovered for three
consecutive months. However, the PMI is still below the 50 level which indicates that the manufacturing sector is still below expansionary territory. As a side note,
The good news is that the China’s Purchasing Manufacturing Index (PMI) which is an indicator of the health of the manufacturing industry in China, has recovered for three
consecutive months. However, the PMI is still below the 50 level which indicates that the manufacturing sector is still below expansionary territory. As a side note,
China’s average PMI for the last two years is 53.2
- b) China Rally : Giant Stimulus Package to be announced todayAdding fuel to the rally is exciting news that a giant stimulus package will be announced bythe Chinese Premier Wen Jiabao today. However, this is a “one-off” piece of news. Once the stimulus package is announced, it is possible that we might see a “sell-on-news” correction in the Shanghai market.
- c) China Rally : Technical Rebound in equities
Before the rally yesterday, The Shanghai market has corrected a significant 13.3% since the 16th of February. As such, the huge rally yesterday can be partially attributed to a technical rebound in Shanghai equities.
Effect on KLCI : Positive but capped?
While we are optimistic about the rebound in China’s Manufacturing Sector, we think that the China rally has to prove itself further for it to have any substantial tangible effects on our KLCI. What’s more, our correlation with the Shanghai market has been dipping for the last few months. However, we are optimistic that the China rally will trigger a rebound in the KLCI in these few days for local investors and traders to sell in strength. We still retain our bearish view of the KLCI until we see a stronger and sustainable mid-term rally in the Shanghai market.
Before the rally yesterday, The Shanghai market has corrected a significant 13.3% since the 16th of February. As such, the huge rally yesterday can be partially attributed to a technical rebound in Shanghai equities.
Effect on KLCI : Positive but capped?While we are optimistic about the rebound in China’s Manufacturing Sector, we think that the China rally has to prove itself further for it to have any substantial tangible effects on our KLCI. What’s more, our correlation with the Shanghai market has been dipping for the last few months. However, we are optimistic that the China rally will trigger a rebound in the KLCI in these few days for local investors and traders to sell in strength. We still retain our bearish view of the KLCI until we see a stronger and sustainable mid-term rally in the Shanghai market.
HAPPY TRADING!!!
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