The China Trade War fear eventually turned into the biggest bounce “over there” in a long time. Sure, the trend is still negative, but the CSI 300 has bounced an impressive 10% from July lows when we reasoned the fear was too high.

The CSI 300 is closing in on the negative trend line that coincides with the 50 day average. This is the first level to watch for the bounce to take a breather.

Note the performance of FXI, SPY and EEM over past 5 days. The most hated space is bouncing the most.

We wrote about Emerging Markets to be the short term relative long play last week. The EEM vs SPY has bounced higher and has probably more room to move higher.

The relative China long (FXI) versus SPY trade has done even better. On July 5th we wrote:

We can read Chinese and Hong Kong stocks are down on a daily basis. That is correct but don’t forget HSI Index is down 12% already from June highs.

The trend is horrible for sure, but given the big support level we are reaching here and the long term trend right around these levels, the set up for a bounce is starting to look interesting.

Chasing FXI longs here for the short term opportunity is probably a late trade given the big outperformance lately, although the longer term spread still trades wide.


Source: Charts by Bloomberg