The Shanghai Composite went into this week sitting near its 2016 low, a level authorities have been keen on defending this year amid the ongoing malaise in Chinese equities, which have been mired in a bear market thanks in no small part to the sour sentiment that’s accompanied the trade conflict between Beijing and Washington.
Oh, what a difference a week makes.
Fast forward to Friday and Chinese shares just logged their best weekly gain since 2016, as the SHCOMP rose a truly impressive 4.3%.
The dramatic reversal of fortune comes courtesy of several ostensibly positive developments, not the least of which was Premier Li Keqiang’s promise not to devalue the yuan. But reports that China is set to slash tariffs on “most” trade partners helped, as did news that Beijing is planning to cut taxes and take other steps to stimulate domestic demand.
Friday was the best day for the CSI 300 since May of 2016:
It seems likely the “National Team” was at least partly responsible for the rally. Earlier this week, Deutsche Bank suggested that now is an opportune time for China to deploy the plunge protection vehicle in the interest of shoring up sentiment. Recall this, from a note dated September 18:
We believe it is becoming increasingly likely that the National Team will intervene this time since: 1) the Shanghai Composite Index is now very close to the key psychological level of 2,638; 2) valuations are turning more attractive than when the index bottomed in Feb16; 3) the latest announcement of USD200bn in tariffs by the US administration; 4) low interbank borrowing costs that the National Team can leverage to strengthen its balance sheet.
So to the extent Trump likes to trot out China’s flagging equity market as “evidence” that the U.S. is “winning” the trade war, this wasn’t a great week.
