China A50: upside risks for earnings grow as stimulus ramps up

Chinese policymakers continue to roll out measures to boost economic activity, suggesting risks for corporate earnings risks may be skewing to the upside given the level of pessimism that already exists.

Upside risks building for Chinese stocks?

Latest media reports suggest China’s state-backed banks are preparing to cut interest rates for existing lending and deposit customers, adding to an increasingly lengthy list of measures designed to reboot confidence and encourage increased spending and investment. Cuts to wholesale funding costs, lower mortgage rates for new applicants, reducing stamp duty fees on stock market transactions and slowing the pace of new IPO listings are just some of the announcements seen over the past fortnight, adding to the sense of urgency to turning the flagging economy around.

While still not the stimulus “bazooka” many investors are waiting for, the greater the number of smaller policy measures, the greater the aggregate risk it may deliver meaningful benefits to corporate earnings and upside for Chinese stocks.

China A50 may benefit from latest support measures

Should the latest speculation on deposit and lending rates prove accurate, China’s A50 will be a market traders should be monitoring closely. Laden with massive financial and property-related names, any potential boost to lending volumes without hammering bank net interest margins any further makes it a prime candidate to benefit from a meaningful turnaround in investor sentiment.

China A50 remains rangebound for now

For all the bearish headlines and sentiment, China’s A50 has been rangebound for the past three months, meandering either side of two decent support and resistance zones starting around 12,400 and 13,400 respectively. There’s no imminent threat of the prevailing range being broken in the near-term, although risks may be skewing towards an upside test given the rapid rollout of supportive policy measures seen in recent days.

Source: Trading View. StoneX.

The A50 ran into sellers at the 200-day SMA at 13,076 earlier this week, failing to sustain the bounce seen following the reduction on stamp duty on stock trades announced over the weekend. That’s something to watch. 12,800 – a level it has done a lot of work either side in the past – is another given that’s where Tuesday’s rally stalled. Should they be overcome, the downtrend from the start of 2022 is the next topside level to watch around 13,200 before we get to the bottom of the resistance zone at 13,400.

On the downside, the demand zone starting at 12,400 has repelled numerous attempts to push the index lower since the end of May.

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.