CHN50 Has Severely Underperformed in 2021 To Date

  • CHN50
    (${instrument.percentChange}%)

Earlier, Premier Li Keqiang commented that China faces downward pressure. He then suggested tax cuts and a reduction in bank fees to stimulate small and medium-sized businesses. These come after some worrying metrics out of China. Manufacturing has slumped in 2021 and the NBS Manufacturing PMI has recorded two months in a row under 50, which implies contraction:
China NBS Manufacturing PMI
China NBS Manufacturing PMI
Past performance is not an indicator of future results
Source: www.tradingeconomics.com

Moreover, GDP growth declined to a worrying level of 4.9% y-o-y in the third quarter. This missed the consensus forecast of 5.2%:
China GDP Growth
China GDP Growth
Past performance is not an indicator of future results
Source: www.tradingeconomics.com

When we consider FXCM's CHN50 contract, 2021 has been a remarkably poor year, with the index down about 13%. However, when we compare it to the Vanguard World ex-US ETF this underperformance is stark. Consider:
CHN50/VEU
Past performance is not an indicator of future results
Source: www.tradingview.com

Besides the decline in GDP and manufacturing, Chinese regulation in various industries is also likely to blame. Generally, regulation makes information flow less efficient. Given this, risk premiums have readjusted driving Chinese stocks down.

This does give rise to potential bargains and consideration as to whether this is a stock pickers market. If the relative strength chart above stabilises and moves above its black 30-week simple moving average, value investors are likely buying good companies at cheap prices. However, given the waterfall-like decline, we will wait for further price action to develop and reassess.

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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