Are We Closing In On Capitulation Levels For Chinese Stocks?

Simon White is a macro strategist at Bloomberg.

Equities are moving closer to a bottom that can be traded in China.

Based on internal measures, improved liquidity conditions and possible signs of a trough in the real estate market.

The MSCI China index has been the third worst performing year-to-date, only beating the MSCI Hong Kong, and Thailand indices.

The Chinese stock market is nearing the bottom of its range, despite several false dawns.

This is on top of the further easing measures that were announced today. These include a reduction in stamp duty for Hong Kong's stock trading.

The percentage of stocks that trade above the 200-day moving median in the CSI 300 is about 20% and falling fast.

Indexes have been known to reverse direction when they reach levels between 0% and 10 %. The index is well below its moving 200-day average.

The ratio of advance to decline is flatlining, indicating that net few stocks are increasing.

The net number of shares that have reached new 52-week lows has also been markedly negative.

It is also not at the capitulatory level, but it is getting close.

This also applies to stocks whose 14 day RSI is less than 30. It is now at more than 40%. Previously, when it was above 50%, it often indicated a price bounce.

China has been adding liquidity to its economy.

PBOC's net-repo infusions are at a record high for a three-month summated basis.

The medium-term lending market is also improving, and one-year policy loan amounts are on course to reach a record high.

The central government, which is less burdened than local governments, has increased its issuance.

As previously speculated. Today, it was announced that the budget deficit will be increased (from 3% of GDP to approximately 3.8%), and an additional sovereign debt worth one trillion yuan would be issued during the fourth quarter.

The real estate market is crucial to a sustained recovery in China. The debt crisis continues to plague property developers, with Country Garden being the most notable.

The property market will remain stagnant until it is revived. The growth in floor space of new homes has been steadily increasing throughout this year, which is a sign of an early recovery.