China – Dancing Close to the Exit
Chinese equities are hated by most, but the trajectory higher continues. We have written about the Chinese bullish set up over past weeks, but this bounce is getting a bit too optimistic soon.
The CSI 300 took another leg higher today post the celebrations in China last week. The move from recent lows is around +13%. The index broke up today and we suspect the 200-day average to be the magnet we must try.
Despite the bullish move in the overall equity index, the margin debt continues to fall.
As we have pointed out several times there is a big correlation between the Chinese equity markets and Chinese margin debt. Speculation is important for the index to continue higher over longer-term time horizon.
Below shows the CSI 300 (orange) and margin debt (white). The gap is getting a bit too big for us to be totally comfortable.
On the other hand, the number one sentiment stock in Asia according to us, Tencent, continues trading strong. The stock closed above the big 350 level for the first time since last summer. Note Tencent closed “well” above the 200-day average.
We continue to like the momentum in China, but given the continuation of less margin debt, we will be dancing closer to the exit.
Source; charts by Bloomberg