China stocks caught fire from the get-go yesterday, with all Chinese indices up by as much as 2% to 3%. Especially potent were indices representing Shanghai and the China A50 - basically indices that have a greater foreign investor following. This may have been sparked by guidelines issued by the CSRC over the weekend suggesting an easier access for domestic funds to invest in HK-listed stocks through the Shanghai-HK stock connect. With Chinese shares listed in HK trading at a discount to their prices in the home markets, H-shares in HK played catch up today, trading up almost 4% at one stage. It’s interesting to note that the China A50 April contract highlighted below is up 17% since the first week of March. Coincidentally, this is also the beginning of the ECB’s bond-buying QE program. Could this strong correlation highlight the positive effect that liquidity from the ECB’s program is also having on Asian markets? In fact, a look at the N225 contracts would also show a similar correlation in timing.

Chinese Airlines Soaring

Chinese Airlines (listed in HK) in particular caught a strong tailwind for most of the day’s session in HK yesterday. China Southern, China Eastern and Air China all traded up by between 10 and 15%. Unconfirmed reports on wires last week carried stories that suggested Sinopec has found a way to blend biofuel with conventional jet fuel for airline use. If they are able to successfully produce this new source of energy in a commercial sense, this new blend is expected to play an important role in supporting aviation’s growth and at the same time address environmental goals.

Could SIA catch the same tailwind?

Singapore Airlines also look good here, consolidating nicely from their strong move from a low of S$9.60 last October to a high of S$12.90 late January. The stock seems to be trading at its Fibonacci levels, pulling back on a 38% retracement and now looking to test the 23% level of a resistance of S$12.125. Should SIA mange to break above this new resistance, another attack of the S$12.90 high is possible. Conversely, should the stock lose its support at this 38% S$11.60 level, we could see it ease back to its next support of S$11.25, or a 50% retracement from the January high.
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