Volatility Continues, State Support Signs Remain Evident After CSRC Pledge

MNI (London) - Chinese & HK benchmarks bounced from worst levels of the day, finishing +0.7% and -0.2%, respectively.

• This came after the weekend saw the CSRC pledge that it will stabilise markets, although regulators and policymakers offered nothing new in the way of specifics.
• The Commission vowed to prevent “abnormal fluctuations,” with a focus on guiding more medium- and long-term funds into the market, along with clamping down on illegal activity. As mentioned above, these snippets failed to provide meaningful specifics, with those matters all touched on in previous rounds of communique.
• This provided the latest such instance of apparent under delivery vs. wider market wants when it comes to policy support.
• That facilitated a sell off in early Monday trade, before the rebound from session lows (which lacked a headline catalyst).
• Note that the CSI 300 failed to breach Friday’s intraday low (which represents the lowest level witnessed since early ’19).
• Chinese margin usage continues to tumble, which suggests that forced liquidation of leveraged longs has factored into the recent run lower in Chinese equities.
• A spike higher in benchmark ETF turnover during the afternoon triggered the latest round of speculation re: direct state-backed support.
• Long CSI 300 vs. short CSI 1000 trades have received plenty of attention in recent weeks, given the national team’s usual focus on larger cap names. However, some small cap ETFs experienced record turnover on Monday (even with the CSI 1000 finishing lower on the day), which triggered speculation re: state-backed support for smaller names.
• Slightly-softer-than-expected Caixin services PMI data failed to impact equities.
• The HK-China Stock connect links provided light net buying of mainland equities for a fifth straight session (~CNY1.2bn on the day).