Market commentary: China returns to spook the markets once again

Markets experienced some additional volatility this week, as event driven news prompted investors to rethink their investment strategies. Earlier this week, stocks sold off on the back of the unforeseen downing of a Russian jet at the hands of two Turkey’s fighter planes, which immediately escalated into a diplomatic crisis between the two countries and their allies. 

Wednesday’s timid rebound was cut short by the traditional US Thanksgiving holiday and the closure of all US markets, which will reopen today for the last trading session of the week. This morning European markets opened lower, following Asian stocks in the red, after the decline in Chinese stocks spilled over to continental equities.

Although the Asian trading session started on a positive note, half way through the overnight session negative news from China spooked investors sending equities in free fall.

The Shanghai Composite Index closed the day almost 4% down after two major brokerage firms disclosed to be under investigation for having allegedly violated trading and securities rules. Citic Securities Co. and Guosen Securities Co. plunged as much as the exchange daily limit after the investigation’s announcement, leading the largest Shanghai Index’s decline since August 2015.

After stabilizing, Chinese equities has witnessed a rebound, however, today’s announcement is likely to prompt investors to question the reliability of the Chinese market and the ability of local authorities to supervise the booming financial sector, providing traders with an excuse to take profits and exit this market once again.

Furthermore, new data seems to indicate that Chinese industrial profits have fallen more than anticipated in October, declining as much as 4.6%, after being substantially flat in September. Although per se not an alarming factor, the latest data is very likely to add to the already widespread concerns over the ability of China to keep its economy growing over 7% while attempting to reform itself and shift away from being a pure investment driven country.

Despite witnessing a weak opening, European stocks managed to fully pair their initial losses and turn into positive territory after data related to November showed that the Euro-area economic confidence has reached its highest level in more than 4 years.

Today’s trend reversal seems to indicate that investors are willing to take an optimistic stand ahead of the meeting in which the European Central Bank is expected to make a decision on whether to increase its current monetary easing policies.

The latest positive news arrives after last inflation data also came in better than expected, with the annual consumer price raising 0.1% in October, and the core inflation indicator, which excludes volatile items such as food and energy prices, advancing over 1%, the highest reading in over two years.

European Sovereign bonds advanced across the board this morning, pushing yields lower, while at mid-day the Euro Stoxx 600 Index had erased all initial losses trading flat on the day.

This article was issued by Paolo Zonno, Trader/Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.