Fundamentals Keep Deteriorating, Leaving Risky Assets Vulnerable in ST

• Fundamentals continue to deteriorate in China, with China Caixin PMI services plunging to 36.2 overnight (significantly below expectations of 40), its lowest level since February 2020, down from 42 the previous month.
• This follows the downtick in manufacturing PMI last week, which fell to 46 (vs. 47 exp), raising investors’ concerns over China’s GDP growth target of 5%-5.5%.
• The economic costs of the strict lockdown policies imposed by the government in recent weeks have been surging, forcing Chinese officials to send more easing signals to stimulate both the real economic activity and domestic risky assets.
• A number of sell-side firms have been revising their 2022 growth forecasts significantly lower. For instance, Fitch recently cut its growth forecast to 4.3% YoY, down from 4.8% previously.
• We have seen lately that China officials have been introducing a series of measures to rebuild confidence on the equity market: crackdown on ‘malicious short sellers’, cutting A-share stock transaction fee, pausing on the campaign against tech companies.
• However, China equities remain fragile in the short term; Hang Seng index is still down over 30% from its high reached in February 2021, which also corresponds to the peak in the Chinese economic activity.
  • HSI index has been testing its 21,287.60 resistance in the past week, which corresponds to the 23.6% Fibo retracement of the 18,235.50 – 31,168.30 range.
• In addition, the bearish sentiment in US equities in recent months and the global risk off environment are also not helping China risky assets at the moment.

Source: Bloomberg/MNI