Three Chinese Bears

Well, I have not covered China for some time now, but the weakness of Asian equities this morning after the loud Western celebrations yesterday, makes me thinking that they are worth making a stop here too.

Let' s look at Shanghai Composite, that broke the triangle to the downside, and sits on the September 2009 lows right now. Index is very oversold technically, and should consolidate at least, but, if we break down, then the party may be really over ...

Click for up-to-date chart via StockCharts.com here, and click on chart below to enlarge.

The economists at Societe Generale wrote this morning:

... don't forget that Goldilocks, somewhat ironically, stumbled into an empty house before pillaging finite resources (food) off 3 bears. China does indeed have 3 bears. The big bear continues to be property, the second bear inflation, and the third bear, generalised overheating.

Rather, I got a distinct message from the source on the ground today:

... liquidity would be tightened in Q2. Incremental M2 growth is already turning negative on a %y/y basis, and we could be seeing up to -30% incremental growth over the next 3-6 months if they don’t relax credit controls. (Total outstanding M2 growth will remain positive, but the incremental change will go negative for a number of months on a %y/y basis).

It should not be anything new to the readers, but the good folks at BCA Research were highlighting today, though:

Business-cycle indicators out of Asia are warning of caution as the period of growth moderation is in the cards.

They are also concerned about emerging markets equities. Click on charts to enlarge, courtesy of BCA Research.

So, watch out!