China’s top share index has found support after a recent downturn and will look for further gains this week after the MSCI added further weight in the country’s stocks.
CHINA 50 – Daily Chart
The CHINA 50 index has been stable around the 14,850 level, but needs to see some follow-through this week. The resistance comes in just ahead of 15,100 for further potential gains.
After stumbling from a high of 15,733 in January, the index hit a low near 14,610. The current support levels also held prices in November and could provide another leg up.
Fidelity Investments is confident that investors will continue to load up on China’s top stocks.
“Chinese companies have increased research and development spending at 20% a year for the past 15 years. The scale and comprehensiveness of the country’s technological ecosystem is under-appreciated,” they said.
“China makes two thirds of the world’s electric vehicles. It accounts for almost twice as many science, technology, engineering and maths PhDs as the US – 50,000 doctorates a year”.
Trump and Xi’s October meeting has also boosted sentiment, as tariffs were frozen and China’s economy has fared well. Meanwhile, the Chinese stock market still trades at a 40% valuation discount to the U.S.
The outlook for Chinese equities was also boosted by news that MSCI had changed the constituents of its Global Standard Indexes. As of February 27, MSCI will add 21 stocks, the largest net increase in almost three years. In contrast, the group added just 8 U.S. stocks but removed 15, reducing its exposure to the country.
China is still not seeing its potential in consumer spending after the property market problems. Chinese retail sales rose 0.9% year on year in December, down from 1.3% in November. The metric has trended lower since May’s 6.4% year-over-year surge.
