THIS COMING week will be a big test for the recently surging A-share market.
Analysts expect most of the downside pressure to come from recently high-flying financial counters in the banking and insurance sectors, but they say sustained strength in resource stocks should help prevent a return to the bearish mid-summer doldrums.
One thing they do agree on is that the turgid trading turnover of the past week will have trouble repeating itself in the coming week, the Chinese language piece in SinaFinance said.
“The continued strength of resource and energy stocks versus the gradual slowdown in financial counters resulted in a relatively flat finish and more stable trading overall on Friday,” the report cited one analyst as saying.
The Shanghai Composite, the benchmark index tracking China’s A shares, edged down 0.28% on Friday to 2,975.04.
A strong driver of resource-based shares was a stronger yuan, and mined commodities were not the only beneficiaries.
“We should be seeing resource stocks, as well as agriculture counters, both be two of the biggest drivers of the market in the current quarter. The strengthening currency has pricing benefits for both sectors in terms of key imported inputs and the dollar-based nature of a lot of major commodities,” another market watcher said.
As one example, China is the world’s largest fertilizer importer and a stronger local currency reduces the cost burden for the country’s farming sector.
“A major market adjustment will arrive, but the timing is the question. I would argue that it will arrive in the near term rather than closer to year end because of the rapid recent rises. The fact that the Shanghai Composite has been challenging, then surpassing, and now challenging the 3,000 level once again suggests that this may be the near-term ceiling.”
The analyst expressed doubt that there was much near-term lebensraum above the psychologically significant 3,000 point mark, and recent challenges and modest successes had proven that.
“The historical high trading turnover we saw this past Monday was a major driver of the bullishness for much of the past few sessions and set the tone for the whole week. However, the wind was taken out of the sales rather quickly and the spectacular turnover on Monday started to look more like an anomaly than an enduring trend.”
The report went on to cite the analyst as saying that this suggested that a correction was on the near horizon.
“The air was gradually sucked out of the room in terms of turnover, and this phenomenon can no longer sustain the recent bull run for much longer.”
However, the correction, which could arrive as early as this coming week, would be relatively quick and painless and was was unlikely to send the index plummeting to year-to-date lows seen in July.
“Although a correction is coming, I am still hopeful about the general uptrend, and the upcoming drop will also present a good jumping-in point for those investors who missed out on the first rise beginning mid-summer and might be encouraged to get back in following another correction.”
While most analysts were predicting a correction of some sort this coming week, they were at odds as to what level would be the most ideal leaping-in point.
“Year-earlier levels are always a good barometer, and I would hazard that this applies to any short-term correction as well. It is a much-referenced marker for judging market performance, especially in relatively volatile periods. So somewhere around 2,870 points would be a reasonable starting point,” one market watcher said.
“It’s a level that should be relatively easy to protect, and the support is out there.”
However, they cautioned against overexposure of financial counters in the near term.
“We still expect much of the downward drag on the Index going forward to be from stocks in this sector.”
But they said there were still individual standouts in the sector, and banks and insurers with strong fundamentals and underpriced shares should not be avoided outright.
See also:
WHAT RATE HIKE? A Shares Protect 3,000 Despite Central Bank Action
PROFIT TAKERS Finally Appear After 7 Day A-Share Bull Run
| WHAT RATE HIKE? A Shares Protect 3,000 Despite Central Bank Action |
