January 06, 2025 at 06:29PM
US-listed China ETFs are struggling today, erasing earlier gains. There was some optimism on the report about Trump softening tariffs but the President-elect later denied that report and China is back in the doldrums.
The MCHI ETF is now 2% lower and at the worst levels since late September.
There are some FX impacts in these charts but if we look at the CSI 300 index, it’s perilously close to a breakdown. Given the turn in the sentiment since the US opened, Tuesday in China trading could be the day.
The PBOC has said that bigger cuts to interest rates and banks’ required reserves are on the horizon but the market wants to see more help for consumers (not just the government wage hikes announced). In less-concrete terms, it wants to see the animal spirits released.
The dirty little secret is that no one knows what’s going on in the Chinese economy, even in China and perhaps even in the government. But sentiment is terrible domestically; been bad since covid and there has been no recovery.
Meanwhile, what China is doing in the car market is impressive. It’s also the only place competing on AI, with some impressive results lately. It’s the easiest place in the world to build anything but that needs to translate — at some point — into better domestic consumption.
There is some real skepticism at the moment and a poor start to the year for Chinese equities underscores it. The best hope for real stimulus isn’t until March and the market is fearful about Taiwan and a trade war at some point, which is scaring foreign capital away.
As for the day ahead, watch out for the PBOC’s announcement on gold buying at 0900 GMT. If the central bank continued to buy, look for gains on Tuesday in gold prices.
This article was written by Adam Button at www.forexlive.com.
