The Shanghai Composite has taken a hammering of late.
There is plenty of room to the downside if this selling is going to develop into something more than a short term correction. Sentiment is clearly fading with ‘accounting irregularities’, rising funding costs for property developers and concerns about bank capital adequacy all being recent features in the news.
For mine, the USD remains the simplest windvane to get a read on the direction for the Chinese equities index (as we noted here – the most recent strength had been in those sectors that benefited from a weak dollar). We can see that energy and commodities have lead the retreat and are bumping into support levels. Financials and industrials look to be ready to follow the leaders lower. If that happens, then this might well be a signal of distress in the Chinese economy.
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