China is losing enthusiasm over hopes of a rebound, as policy stimulus falls short of expectation while the economy remains in a Covid Zero trap, according to key market data.
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The CSI 300 Index has wiped out most of its mid-March rally triggered by a sweeping set of policy promises to stabilize markets. The benchmark is now 2.2% above its March 15 close, when a historic rout pushed the benchmark to the lowest since June 2020.
The decision of Chinese banks to keep lending rates unchanged was the latest disappointment for investors who had expected authorities to ramp up monetary stimulators, with Wednesday's decision by the Chinese banks to keep lending rates unchanged. The Federal Reserve hikes rates have also dampened sentiment and resulted in lockdowns in major cities across the country.
Here are three charts that highlight investor caution over China's onshore equity market:
The longest streak of declines since January was when the amount of outstanding margin financing dropped for nine consecutive sessions on Tuesday. The fall in demand for leveraged trade indicates sluggish risk appetite. History suggests that stock leverage demand tends to rise alongside a market rebound.
BofA Securities Inc. strategists have taken a turn for the worse with the latest round of the Covid 19 resurgence that has led to lock downs of key economic hubs, according to a note this week by Ritesh Samadhiya. A substantial ramp up in policy easing is necessary in order to meet the 5.5% growth target. Overseas investors are pulling money from mainland shares as the growth risks and the yuan's weakness against the dollar fall to multi-month lows. Foreigners offloaded 45 billion yuan of shares onshore through the stock connect in March, the most in two years. The data compiled by Bloomberg shows that there were 6 billion yuan net outflows this month through Wednesday.
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Daily turnover on the Shanghai and Shenzhen exchanges fell below 800 billion yuan earlier this week, marking the lowest level since May last year. The slump underscores investor caution as China sticks to its strict Covid Zero approach. At least according to past occurrences, a rebound in trading turnover in a down-trending market could indicate a short-term bottom, though investors say a meaningful rebound is unlikely barring a shift in Covid policy.
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