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Two months into China’s fastest stock rally in years, and the days of making easy money are ending.
Turnover is tumbling, and investors are rotating out of consumer shares that have been among their favourite bets this year and into cyclicals. Overseas investors offloaded Chinese equities for the first time in five months in August, and the sales have accelerated this month. The tech-heavy ChiNext Index breached a pair of technical levels that have held since July.
Those factors combined with fears about a selloff in the US have shaved more than 4 pre cent off the CSI 300 Index since it hit a five-year high nearly two months ago. The ChiNext, which has beaten major global gauges this year, has surrendered almost one-third of its gains largely on investor concern that a flood of new listings will drain liquidity from existing shares with inflated valuations. Both measures rebounded Thursday, adding 1.1 per cent.
“Turnover and liquidity conditions are not aligning in the best place for the market right now,” said Shen Zhengyang, an analyst at Northeast Securities Co. Were halfway through a correction.
Here are four charts that show the recent pullback in China stocks.
Turnover has tumbled since July, when it hit the highest since the peak of the stock bubble in 2015. The daily average for September has dropped to 908 billion yuan ($133 billion), 28 per cent lower than it was two months ago.
The ChiNexts 4.8 per cent slide on Wednesday was the biggest in more than six weeks and raised red flags for traders guided by technical charts. The drop was a clear breach of the 2,600 level that had held for two months and of the 23.6 per cent Fibonacci retracement line connecting the years intra-day high and low.
Investors are fleeing one of their favourite trades of the year: consumer staples. A measure of those shares tumbled 8.8 per cent over the five sessions to Wednesday, the most in almost six months.
Chinese stocks with dual listings are about 42 per cent more expensive on the mainland than in Hong Kong, near the highest level in years. The Shanghai gauge slid after the premium soared in 2015 and again in 2018.
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