Struggling Chinese equities calls for caution

Once again, China is not showing the same kind of optimism we have seen elsewhere around the world, with equities there closing lower overnight to extend the recent run of losses. In contrast, the UK’s FTSE 100 today hit a new record high. On Wall Street, equities have remained overall supported on hopes of peak inflation. Last year, we saw China lead the global markets lower. The fact that equities at the world’s second largest economy are falling again, this calls for caution for investors around the world. When China sneezes, the rest of the world tends to catch a cold. That said, it is not yet clear whether Chinese equities are simply in consolidation mode after their impressive recent gains, or it is something more significant. I would err on the side of caution, regardless, even if we have seen Chinese data respond positively to the re-opening.

Anyway, here’s a daily chart of our China A50 index, derived from the underlying FTSE China A50 Index:

As can be seen from the chart, the index has been trending lower for the last couple of weeks, after the rally on re-opening optimism faded. The index has lost more than 6% from its high last week.

The attempted bounce from support around 13500 has already faded. Next level down is 13310 to 13330, where old resistance meets the 200-day average. Lose that and a drop the next support a 13050 would be on the cards.

At this stage, the bulls need to see a clear sign of reversal before potentially looking for buying opportunities. A closing break above resistance around 13600 could be the trigger.