China's trade data posted overnight showed scant evidence of the Sino-US trade war with exports steady and imports on the rise. It is likely too early for the US tariffs to skew the data much yet, however, and another drop in Chinese equities shows that the situation is far from resolved.
Article / 14 December 2016 at 10:02 GMT

Chinese shares remain under pressure before Fed meeting

Saxo Capital Markets China
  • Market worries about Fed and regulatory headwinds
  • Regulator blasts insurers as 'short-term capital market savages'
  • New rules to reduce insurers' investments in stocks
china stocks
 No sign of Christmas cheer in the Chinese market. Pic: iStock

By Jay Luo

Chinese shares traded lower on Wednesday as investors stayed cautious ahead of the Federal Reserve interest rate decision and on concerns of regulatory headwinds and liquidity squeeze. Shanghai Composite Index slid 0.46% to 3140.53 and the Nasdaq-style ChiNext Index dropped 1.11% to 1963.08.

According to a CCTV report, the China Insurance Regulatory Commission said on Tuesday evening that insurers should be long-term money providers rather than short-term capital market savages.

The regulator will reduce the proportion of insurance funds allowed to invest in stocks and further cut how much a single shareholder can own in an insurer. New rules will also require insurers' parties acting in concert to apply for regulatory approval before acquiring listed companies and their purchases must be funded by their own capital.

By the end of October, China insurers invested 1.2 trillion yuan in the stock market, of which 60% was in blue chips.

On the technical side, Shanghai Composite Index struggled to fill the price gap left on December 5 last Friday. However, the negative news released on Friday evening made the benchmark index plunge 2.5% in heavy trading volume this Monday, forming a Head and Shoulders pattern with a potential downward target around 3090/3100, which is near the upward trend line since late February and also the 38.2% Fibonacci retracement level of the recent rally (from September low to November high).

Shanghai Composite Index (daily) was still under pressure with key support around 3090/3100.
Shanghai Composite Index, Daily

Source: EastMoney

Shanghai Composite Index (15-minute): bearish divergence signal emerged and the index broke out the wedge in late session.
Shanghai Composite Index, 15m

Source: EastMoney

ChiNext Index (daily) closed at 9-month low.
ChiNext Index, Daily

Source: EastMoney

In addition to the regulatory headwind, some other negative factors such as profiting taking after the recent market rally, liquidity concerns, worries on the yuan’s further depreciation and rising inflation (stagnation risk), the upcoming Fed meeting, also brought downward pressure to the market.

The Shanghai Interbank Offered Rate (SHIBOR) rose across the board for the second consecutive day on Tuesday. 3M SHIBOR rose for the 40th consecutive day to 3.1568%; 1M SHIBOR rose 1.56 basis point to 3.1072%, the highest level since this February.

SHIBOR continued to rise.

  Source: National Inter-Bank Funding Center 

— Edited by Clare MacCarthy
Jay Luo is an editor and analyst at Saxo Capital Markets in China


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