China's stock market is looking more than a little crook

Jie Zhao/Corbis via Getty Images
  • China’s Shanghai Composite Index has shed 15% from late January.
  • It now sits at the lowest level since May last year, breaking below February’s low on Wednesday.
  • Strong Chinese economic data, nor a cut in the reserve ratio requirement for some Chinese lenders announced on Tuesday, has been enough to reverse the slide.

The once high-flying Shanghai Composite, China’s benchmark stock market index, is looking more than a little ill at present.

Here’s the chart.

Shanghai Composite Daily Chart

It’s one ugly looking chart, with the index breaking below its February low earlier today, leaving it sitting at the lowest level since May last year.

From the high it struck in January this year it has now shed 15%, a sizable drop that has, in the past at least, led to government-backed support for stocks.

Coincidentally, the selloff in Chinese stocks on that occasion led a broader downturn in global equity markets. On this occasion, the latest downdraft hasn’t impacted global investor sentiment, yet.

Aside from breaking the technical uptrend that began in early 2016, trade tensions between China and the US, seeing both side announce possible tariffs on selected imports from the other, has undoubtedly contributed to the recent weakness.

More recently, some have suggested a potential break of the Hong Kong Dollar peg to the US dollar, along with an increase in short-dated US dollar borrowing costs, may have also been a factor.

Not even news data showing the Chinese economy grew 6.8% in the March quarter compared to a year earlier, nor a reduction in the reserve ratio requirement for some Chinese lenders on Tuesday, has been enough to stop the slide over recent days.

Chinese bonds, over the same period, have been rallying across across the curve.

As one astute observer noted on Twitter today, recent events all look a little unusual.

Definitely one to watch, especially should the index not manage to climb back above February’s low this afternoon.

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