22.05.2022
Chicago 11, Melborne City, USA
Business

Negative news ends, the market is ready for growth 05/13/2022

The Hang Seng Index in Hong Kong for the week from May 5 to May 12 fell by more than 7%, breaking through the support level of 20 thousand points. However, this decline can be considered temporary, as it occurred under the influence of large-scale sales in the technology sector of the US stock market, which lost more than 4% over the week amid reassessment of expectations of rising rates and continued high inflation.

Chinese Premier Li Keqiang again urged regional and financial authorities to boost employment and boost economic growth. In April, the world’s second-largest economy came under a lot of pressure due to the recent coronavirus outbreaks and a stronger-than-expected impact from events abroad.

Li warned of a “difficult and serious” employment situation as authorities in Beijing and Shanghai tightened restrictions on residents due to the coronavirus. Lee instructed government agencies and regional authorities to prioritize measures to support enterprises aimed at maintaining jobs and overcoming other problems.

News of the week

1) On Tuesday, May 10, Shanghai reported a 51% drop in the number of coronavirus cases detected to 1,487 from 3,014 on Monday, the largest drop since the current outbreak began in March. Moreover, Shanghai reported that all infections were found among those already in quarantine facilities, with no new cases detected in the city itself.

The Chinese authorities believe that the only way to suppress the outbreak is to reduce the spread to zero. Shanghai authorities have clarified that after three days have elapsed since the transmission lockdown, restrictions can be eased.

2) The Chinese authorities instructed central government agencies and state-owned companies to replace personal computers of foreign brands with local counterparts within two years. This is one of the most ambitious measures taken by the PRC, aimed at the refusal of leading local government agencies from key foreign technologies. At least 50 million PCs are subject to replacement. Many observers see the move as preparation for possible Western sanctions.

3) Sunac, China’s fourth-largest property developer, defaulted on a bond coupon payment, according to Hong Kong Stock Exchange disclosure documents. The company’s access to new funding remains limited, exacerbated by the recent Covid-19 outbreak in the country, which has accelerated the industry’s sales decline. Sunac has appointed legal and financial advisors to help assess the company’s capital structure and liquidity.

Sunac is the largest developer to default on government bonds this year. Some Sunac dollar bonds were already trading above 80 cents per dollar in February. Now they are below 30 cents.

4) Asian and emerging market stocks are entering the late stage of a bear market, but profits and valuations are not enough to talk about a reversal, according to a report by Morgan Stanley, which takes a neutral view of the region.

The bear market was “influenced by valuations, regulation, geopolitical factors and supply chain pressures.” “The last leg of the Chinese market cycle is likely to be bumpy” due to Covid-induced restrictions. “The easing cycle of monetary policy is in the process of being formed, but its timing and scope depend on the fight against Covid, which implies initial risks.”

Short term expectations

We continue to believe that the peak of the sale of Chinese assets has passed. The Shanghai lockdown won’t last forever and when it’s lifted, stock prices will skyrocket, so buying stocks in China is justified at current levels. At the same time, we draw attention to the fact that the mainland Chinese market index has not changed over the past week, which also indicates an increase in the number of optimists in the market.

https://t.me/china_pre_IPO

Another reason for optimism may be the dynamics of oil prices, which are in a narrow range of $105-110/bbl, which also lowers inflationary expectations in the world and contributes to the stabilization of prices on the market for shares of technology companies in the medium term.

Normalized dynamics of benchmarks from the peak of the Chinese market, %

Source: Bloomberg, ITI Capital

* KWEB is a passive ETF that reflects the dynamics of the CSI Overseas China Internet IT companies index

Weekly calendar

Weekly calendar

Source: Bloomberg, ITI Capital

Market indicators

Market indicators

Source: Bloomberg, ITI Capital

Stock quotes of Chinese technology companies

Stock quotes of Chinese technology companies

Source: Bloomberg, ITI Capital

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