Author: Sandeeep N

The CSI 300 fell 3.48% on lower volume and remains in a Confirmed Uptrend with the number of distribution days increasing to five. The index broke below its 21-DMA (4,963, +1.5%) and met support at the 50-DMA (4,851, -0.8%). November exports increased 21.1%, hitting a 20-month high and beating expectations of 9.9%. Imports rose 4.5%, slightly lower than last month but in line with consensus. November CPI fell 0.5% y/y, lower than expectations and October’s reading due a 12.5% fall in pork prices. PPI fell 1.5% y/y, in line with consensus and less than October’s 2.1% decline. M2 rose 10.7% y/y and incremental loans were RMB 1.43T, both slightly higher than expectations. S&P Dow Jones Indices said it would remove the A-shares, H-shares, and ADRs of 10 companies, including Hikvision (HVD.CN) and Semiconductor Manufacturing International Corp (SM6.CN), from all equity indices prior to market open on December 21. Market sentiment was dented by rising U.S.-China tensions and tight liquidity as the end of the year approaches. Investors are concerned that the government will start tightening monetary policy amid a robust economic recovery and surging commodity prices. Energy led the market this week as coal and iron ore prices surged. Consumer Staple showed strong momentum, with the expectation of increasing consumption of baijiu and beer in the Chinese New Year. We expect the CSI to stay range-bound due to the clustering of distribution days and tight liquidity at year-end. We advise investors to stay disciplined in the recent volatile market and focus on quality stocks breaking out of proper bases or key resistance levels.

The CSI 300 gained 1.71% on higher and above average volume. The market remains in a Confirmed Uptrend with the number of distribution days decreasing to three. The index made a new high of ~5,090 (+0.5%) Wednesday, with no clear resistance until June 2015’s high (5,380, +6.2%). The Trump administration plans to add China’s top chipmaker SMIC and national offshore oil and gas producer CNOOC to a blacklist of companies with military ties to restrict them from buying U.S. goods and technologies. Official manufacturing and non-manufacturing PMI in November were 52.1 and 56.4, respectively, both higher than October. November’s Caixin manufacturing and services PMI for small business were 54.9 and 57.8, both hitting new highs since 2010. Market sentiment was boosted by improving economic activity despite rising U.S.-China tensions. Health Care, Consumer Staple, and Technology rebounded after a period of consolidation. Low-valuation sectors such as Real Estate and Utility retreated. We look for the index to be more bullish if leading sectors can hold up constructively without quick sector rotation. We advise investors to focus on quality stocks breaking out of proper bases or key resistance levels and avoid chasing highs.