Will the Momentum on Equities Hold As Fundamentals Keep Cratering?

• While a growing number of countries have started to adopt a ‘living with Covid’ policy, China officials have decided to keep a very restrictive ‘Zero-Covid’ policy, which has been significantly weighing on the economic activity.
• We saw recently that China authorities have extended their lockdown of Shanghai to the entire city (26mil people) after recording another 13K cases on Monday.
• Fundamentals have started to worsen in recent weeks, with China Caixin Services plunging to 42 (vs. 49.7 exp.), its lowest level since February 2020.
• Last week, manufacturing PMI also fell below the 50-line threshold that separates growth from contraction, questioning if the easing policy will be enough to absorb the significant losses from lockdown policies.
• Investors’ scepticism on equities trend has been growing as weaker fundamentals could limit the upside gain on China risky assets.
• The Hang Seng Index is up over 20% from its low reached on March 15 when reporters were told that regulatory authorities were ‘mulling measures to jointly crackdown on malicious short sellers’.
  • ST resistance to watch on the topside stands at 22,746.90 (50DMA).
  • On the downside, first support stands at 22,000, followed by 21,287.60 (23.6% Fibo retracement of the 18,235.50 – 31,168.30 range).
• Renewed lockdowns have also increased concerns over further uncertainty over Chinese and global supply chains, potentially supporting inflation expectations.

Source: Bloomberg/MNI