China A shares indices registered an eye-watering gain of 5.6% on Monday, with Shanghai and Shenzhen’s total turnover reaching 1 trillion yuan.

That is around 60% of the average weekly volume over past 10 weeks. Shanghai Composite surged 157 points, or 5.6% to 2,961 points, gaining over 20% from its December low of 2,440 and entering technical bull market.

President Trump’s decision to extend tariffs deadline without giving a specific date alleviated concerns over escalation of trade tensions. Sentiment improved across the board since the beginning of this year. Lacking fundamental support, however, the sustainability of this rally will ultimately rely on policy and liquidity support. The state media of China started to propagate the importance of financial market’s role in boosting economic activity recently, showing policymaker’s support for healthier and vitalised stock markets. On the liquidity front, the central bank is very accommodative and borrowing rates have dropped substantially to cushion a slowing economy.

Big rally like this will create ‘sense of regret’ for investors who missed out on earlier opportunities, and attract idle money to flow in. ‘Wealthy effect’ boosted confidence and led to a positive spiral in market mechanisms. The margin trading that ultimately caused the stock market bubble burst back to 2015, is still at relatively low level now. China’s margin trading outstanding amount is at 765 billion, still far from 2015’s peak of 22,700.

Foreign investors, however, seemed to be sceptical on the rally, as HK-Shanghai Link northbound registered some 5 billion Chinese yuan of net outflow. This signalled a reverse of consecutive net inflow in the past two months.

Brent crude oil prices pulled back from key resistance level of US$67.0 area to the 65.0 area last night following President Trump’s tweet to OPEC to ‘relax and take it easy’ – warning against high energy prices. Mr Trump previously criticised high oil prices and excreted political pressure to undermine OPEC’s effort to boost prices. Crude oil’s 33% gain on 24 December 2018 is now facing both technical and political pressure ahead.

Similarly, gold price is consolidating at around US$1,327 area after reaching a key resistance at US$1,340. MACD divergence suggests there could be more downside as the upward momentum is depleting. This week’s Kim-Trump meeting in Vietnam could potentially catalyse some big movement in gold prices.

CSOP FTSE China A50 ETF

 

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