Chinese stocks showing signs of value accumulation

  • CHN50


FXCM's CHN50 CFD is showing good signs of progress on a primary trend basis. It has broken above its down sloping trendline that has defined price momentum since February 2021, indicating that the downwards momentum has certainly waned. Importantly its trend following indicators which have been in a bearish formation for over two years are looking to cross up (top black ellipse). This positivity is accompanied by an RSI which is shifting to the bullish side of the indicator (blue rectangle) for the first time since falling below 50 in July 2021 (there was a brief whipsaw above 50 in December 2021 but that was very short-lived).

It looks as if Chinese stocks are bouncing back after years in the doldrums. Value investors are encouraged with the tone policy makers have taken to support the development of real estate, and it seems that Beijing is intent on spurring growth. Nevertheless, there is still an air of caution with some market participants wanting more proof e.g. are unfinished projects being completed and prices stabilising. Moreover, a broadening of improved earnings outlooks would be encouraging.

China's new securities regulatory chief is wooing back foreign investors by discouraging dilutive secondary offerings and promoting dividends and buybacks, which should please potential investors. Whilst geopolitical risks, trade tensions, and perceptions of China's investment viability could curb market rallies, the relative undervaluation of Chinese stocks suggests that any economic improvement might trigger a "fear of missing out" surge.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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