China A50 ponders reversal after state-backed intervention

China’s equity markets have underperformed this year despite further monetary easing from PBOC and efforts from state media to support local markets. Whilst investors have been concerned about debts in the property sector, data released which showed economic trends over the festival break disappointed investors sparked a new round of selling. Furthermore, sentiment was further knocked on news that the US has added 33 companies to their ‘red flag’ list, which makes importing goods to America tougher.

Yet rumours that the ‘National Team’ (state-backed funds) had stepped into the markets yesterday afternoon helped revive sentiment and recoup earlier losses for the day. Unnamed sources claim that financial shares such as brokerages were among those markets purchased to support the market. And we suspect that news of the intervention could provide further support as investors who are side-lined may be tempted to return to the market, knowing the state is behind them.

The China A50 has fallen over -12% from its December peak and currently trades around -3% for the year. Its decline stalled above the 14,516 August low and printed a lower spike (which shows demand around 14,600) before reverting within the lower Keltner channel. Prices have since retested the 20-day eMA ahead of yesterday’s initial sell-off, before reports of the intervention allowed the market to rally into the close and form a bullish pinbar and higher low.

Furthermore, a bullish divergence has formed on the stochastic oscillator and the MAC has generated a buy signal, which warns of a trend reversal. We are therefore waiting for prices to break above the 15,144 high to confirm the reversal the indicators are hinting at.

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