China A50 resistance test looms as bonds flash expansion

• A50 nearing December swing high at 14,409
• Breakout could target 15,000, 15,079, then 15,200
• Bond market curve steepening hints at possible economic recovery

China A50 Summary

Chinese equities have been on a tear, with indices like the A50 and Shanghai Composite charging higher as retail money shifts out of bonds and into stocks. Turnover has surged, the market cap of Shanghai and Shenzhen combined has punched through RMB 100 trillion for the first time, with the share prices of brokerages flying as trading volumes explode.

Source: TradingView

The story being told is one of local investors abandoning bonds, chasing higher returns in equities. Yet China’s sovereign curve has been bear steepening this year, with 2s10s and 5s30s moving sharply off cycle lows. That’s a pattern usually seen at the start of an economic upturn, not an economy undershooting on retail sales, industrial output, fixed asset investment, PMIs, and inflation.

Source: LSEG

Maybe bond investors are seeing something others aren’t. If the curve steepening does flag an approaching economic recovery, it could provide fundamental backing to the rally in Chinese stocks, including the biggest in the business in the bluechip A50 index.

China A50 Primer

The FTSE China A50 Index tracks the 50 largest companies listed on the Shanghai and Shenzhen exchanges, covering sectors like banks, insurers, energy firms, and tech. It’s widely used by global investors as a barometer of China’s stock market and is the underlying benchmark for popular futures contracts traded in Singapore. Because of that, the A50 often drives sentiment in offshore markets and is seen as a key gauge of Chinese equity performance.

A50 on Collision Course with December Highs

Source: TradingView

China’s A50 index appears to be on a collision course with the swing high set in December last year, motoring higher like so many other Chinese indices. If we see a clean break of the level, there’s very little technically standing in the way of a potential move back towards the blow-off highs set in October 2024.

14,409 is the level in question, with the current trajectory putting it on track to be tested as soon as Tuesday. Should we see a break and close above it, or at least a definitive bullish move, longs could be established with a stop beneath for protection.

15,000 screens as an initial target simply because it’s a round number, along with 15,079—the 23.6% fib of the September–October surge last year. Beyond that, 15,200 looks to be the last level of any significance before the October 2024 swing high of 16,322.

Of course, if the price cannot meaningfully clear 14,409, the setup could be flipped, with shorts set beneath the level with a stop above for protection. 14,185 and 13,700 screen as potential targets.

MACD and RSI (14) are both generating bullish momentum signals, favouring a bias to buy dips and topside breaks rather than selling rallies.