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Seeing red in China Equities
The Chinese indices’ collective drop of 6% yesterday reminded us that the state of unwind, and fears over the recent stocks collapse has anything but abated. The 3 key indices of Shanghai, Shenzhen and CSI300 bled red (or in China’s case –green) as stocks took a decided direction down when afternoon trading kicked off. Similar to most recent sharp moves there, yesterday’s late plunge had no reasonable suggestion for triggers. The Yuan, rocked for most part of last week, was relatively calm, closing near to Monday’s close at 6.394 to the USD. Even reports of a huge PBOC injection of 7 day reverse repos amounting to 120 billion Yuan - the largest in 18 months – failed to offer any support to the selloff. The China A50 August contracts have broken below the descending triangle pattern as shown below and have held at the close, late July’s low of 10400. This is a key support for this index. If this fails to hold, a retest of July’s bottom of 9800 could materialise. Looking at the September contracts however, the picture looks a little more threatening with the September contract at an approximate 200-250 point discount, attempting to test its 10000 low for a third time. A break out from this simple triangle as indicated could set things off in a firmer direction.
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