Chinese Stocks Give Up Trump Gains As $1.7 Trillion Source Of Funds Unwinds
The Chinese and U.S. stock markets are going in opposite directions, as an intensifying crackdown against leverage has slammed the recently ‘stable’ Shanghai Composite over the past week, erasing all post-Trump gains.
Bloomberg reports that given how mainland stocks have become increasingly linked to global markets, however, the divergence may prove to be a short-term phenomenon, according to Daniel So, a strategist at CMB International Securities Ltd. in Hong Kong.
“The Chinese government is squeezing speculation out of the market and while investors adjust, it will inevitably lag behind other parts of the world,” So said.
And as we noted previously, for a market relying more on liquidity than fundamentals, China’s worsening monetary conditions index suggests tough times ahead…
China’s deleveraging drive and the renewed focus on market irregularities have put the mainland share market into a “bad mood,” but officials aren’t likely to tolerate a lot of instability ahead of the Communist Party’s twice-a-decade leadership reshuffle later this year, said George Magnus, a former adviser to UBS Group AG and current associate at the University of Oxford’s China Centre.
“The authorities are trying to calm down leverage and housing at the margin but will not go any further than the minimum necessary,” he said. “If it looks as though regulatory tightening is delivering unfavorable outcomes, and risks any form of instability, you won’t be able to say the world ‘backtrack’ fast enough.”
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