Equities Trend Higher Despite Recent Market Turmoil

• Interestingly, the sharp selloff in European and US risky assets this month has not been impacting China equities, which have been trending higher since the start of the year.
• The chart below shows the strong divergence between the indexes since early January; while the SP500 is down nearly 10%, the Hang Seng Index is up over 4%.
• Periods of market shocks (i.e. geopolitical tensions) have been generally associated with a global selloff in risky assets as EM and China equities tend to be strongly correlated to US/European markets.
• It will be interesting to see if a sustain period of uncertainty in the West will eventually be followed by a sharp consolidation in Chinese equities.
• Last year, the significant deceleration in China economic activity and the contraction in 'liquidity' have led to a strong correction in domestic risky assets; HSI index consolidated by over 27% between its February high and December low.
• Hence, China officials have announced the start of an easing cycle to stimulate both the economic activity and domestic asset prices, and potentially weaken the Chinese yuan, which has been constantly strengthening against major crosses since May 2020.

Source: Bloomberg/MNI