Author: Sandeeep N

The CSI 300 fell 3.0% on slightly higher volume and remains in an Uptrend Under Pressure with the number of distribution days increasing to six. The index fell below its 50-DMA (4,712, +1.8%) and above August’s low (4,566,-1.3%) with no clear support until the 100-DMA (4,344, -6.1%). Economic data in August was mostly positive. August exports rose 9.5%, beating expectations of 8.3%, but imports fell 2.1%, missing consensus of a 0.7% increase. PPI fell 2.0% y/y, while CPI grew 2.4%, both in line with consensus. Total social financing increment was RMB 3.58T, much higher than July’s 1.69T and consensus of 2.66T. M2 grew 10.4% y/y, slightly lower than expected and July’s figures. The market stopped its plunge Thursday as sentiment was supported by the rebound of U.S. stocks. Technology, Health Care, and Consumer Staple took the lead again Friday after a week’s correction. Government measures to crack down on the speculation of small-cap stocks in the ChiNext Market encouraged investors to shift back to mid- and large caps, driving up indexes. We remain cautious due to the clustering of distribution days and recommend investors stay cautious in the near term until the index retakes key support.

The CSI 300 fell 1.53% on slightly higher volume and remains in an Uptrend Under Pressure with the number of distribution days increasing to five. The CSI faces strong resistance at ~4,900 (+2.7%), with immediate support at its 21-DMA (4,750, -0.4%) and 50-DMA (4,675, -2.0%). August PMI data indicated relatively positive economic activity. The Caixin manufacturing PMI for small business was 53.1, the highest since February 2011 and better than July’s reading and consensus, although the official manufacturing PMI missed slightly. Technology led this week as the government added measures to boost the domestic semiconductor industry to the draft of the 14th five-year plan, while Consumer Staple lagged due to profit-taking. Market sentiment was dented Friday by the heavy selloff of U.S. shares and northbound trading via the HK-China Stock Connect posted five consecutive days of net outflows for a total of RMB 22.2B. We remain cautious as the market has been volatile and recommend investors focus on quality ideas breaking out of key resistance.