Ok, so China looks like it’s in some pretty serious trouble.
One day after the SHCOMP officially fell into a bear market, H-shares suffered the same fate, falling 2.2% to bring losses since their January 26 highs to 21%.
That is a pretty damn remarkable turnaround. If you think back to January, H-shares were a veritable world-beater. At one point, they staged a truly incredible 19-session win streak:
Hong Kong-listed shares of Industrial & Commercial Bank of China have fallen for 13 days a in a row:
Onshore markets got no relief on Wednesday either, with the SHCOMP falling another 1.1%:
Clearly, the yuan has people spooked. We’ve been over this a hundred times in the past several days, but just to reiterate, the currency has exactly nothing working for it right now. There’s speculation Beijing could deploy it as a weapon in the trade war with Trump (or worse, that what we’re seeing is evidence that it’s already been deployed) andthere’s decelerating growth which has necessitated loose monetary policy that in turn makes the policy divergence with the Fed wider.
Both of those things are conducive to capital flight if they persist. The offshore yuan is at its weakest against the dollar since December:
And if you look at a chart of the onshore yuan that captures the August 2015 deval., you can get a sense of how quickly it’s falling:
So yeah, this is some reasonably harrowing shit – to the extent it makes sense to use “reasonably” with “harrowing.”
“Investors are getting into a bit of a panic now,” Ken Peng, at Citi Private Bank in Hong Kong told Bloomberg for a piece out Wednesday, adding that “policy makers might be allowing the market to push the yuan weaker, without doing it themselves, as the trade tensions with the U.S. worsen and will be wary of burning foreign-exchange reserves to little effect.”
