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  • In the past few months, we have seen that China 'liquidity' has been contracting sharply, which generally tends to weigh on both domestic and international asset prices.
  • For instance, the chart below shows how strongly China Tech stocks have co-moved with the annual change in the Total Social Financing (TSF) 12M sum in the past cycle.

Source: Bloomberg/MNI

  • In addition, cyclical and value sectors such as China financials have also struggled to trend higher despite the significant increase in global liquidity and have been consolidating lower since the start of the month.
  • With a current price-to-book ratio of 0.74 and a price-to-earnings ratio of 5.84, China financials are considered to be extremely 'cheap' relative to EM financials (MXEF0FN Index), which currently offer a P/B of 1.15 and a PE of 10.97.
  • China Financials are down 5% MtD and are gradually approaching their 200D SMA support at 482.80; a break below that level would open the door for a move down to 471.

Source: Bloomberg/MNI