CSI 300 At YTD Lows, HS China Enterprise Index Off 20% from Jan Highs

China stocks remain under pressure. The CSI 300 is down slightly at this stage, off ~0.80%, with the index hitting fresh YTD lows near 3800. We remain above lows late Oct/Early Nov last year (close to 3500), before China exited CZS, but we are more than 10% off late Jan highs. The Shanghai Composite is faring better, but is only modestly above its simple 200 day MA.

• A combination of waning economic momentum, with the best of the recovery impulse now behind us, is certainly a headwind. The Citi China EASI has slumped, now at +16.40, we were +150 back in April, while the market has also started to downgrade China growth expectations for Q2 and 2023 as a whole.
• US-China tensions, which is seeing the US place chip/tech export constraints on China, is the clear other constraint.
• Since mid-May Northbound stock connect outflows have been -22.3bn yuan. YTD inflows are still +172bn yuan for the year, but we are down from a high of 195.6bn yuan.
• The Hang Seng China Enterprise Index is faring worse than mainland shares, with this index off around 20% from late Jan highs, so in bear market territory.
• This may increase the value opportunity, but the market may wish to see a combination of improved data momentum (we get official PMIs tomorrow), reduced tensions with the US and/or greater signs of stimulus from the authorities.