China is back on track

China is back on track

15. juni 2021 fra CarlsquareLæsetid: 8 minutter

To understand the markets over the past 20 years, it has been necessary to understand China. The country has gone from a poor agricultural nation to the whole world’s factory, to today be a leader of many industrial sectors.

Financially, China has often been the first to introduce new policies, such as during the financial crisis of 2008 when China was the first to introduce support measures in the form of QE – quantitative easing.

Markets compared: CAC (France)/DAX (Germany)/S&P500 (USA)/RTSI (Russia)/SSEC (China)

Note: Past performance is not a reliable indicator of future results.

Markets compared: CAC (France)/DAX (Germany)/S&P500 (USA)/Moscow Exchange (Russia)/SSEC (China), five-years:

It is therefore extremely interesting to follow developments in China, especially when its stock markets lag the rest of the world.

Source: Refinitiv Reuters

GDP in China return to previous levels.

When we look back at the pandemic in ten years’ time, it will probably look like a blip in the graphs. The problem with official statistics in China is that they are highly self-fulfilling. This is since the regions receive growth figures they must adhere to. They then tend to report around the guided level, regardless of the outcome.

Monthly electricity generation in China (in terrawatt hours)

As known, one cannot produce more electricity than what is being consumed. This means that electricity production is a good estimate for China's economic growth.

Above is China's total electricity production, which continues to move upwards at a rapid pace.

If you zoom in on the first quarter of 2021 compared with the first quarter of 2020, there is a sharp increase of 19 percent. The strongest growth takes places in wind. But in absolute numbers, most of it consists of the increase in thermal, which mainly is made up of energy from coal.

China is interesting from several aspects such as security policy, climate, and democracy. We are great friends of China, but the development in the country has been challenging in the last decade. The state´s control of practical everything within the country makes it increasingly difficult to follow developments.

Number of hits on Xi Jinpings name on Google in China

It is said that it has gone so far that people deliberately avoid mentioning their head of state Xi Jinping in social media or over the chat in order not to attract interest from the security services. Above is the number hit by his name on Google in China over the past five years. Even if one is not drawn to conspiracy theories, the development is a little strange.

From a purely stock market point of view, the Shanghai stock exchange index (SSEC) is in a dull consolidation phase:

Note: Past performance is not a reliable indicator of future results.

But if you pull out the curve in time and look at the weekly graph, you see that the Shanghai Stock Exchange index may be about to break out of the consolidation that has taken place since the crash in 2015.

Note: Past performance is not a reliable indicator of future results.

Below is the development for the stock market in the USA (S&P500 index, SPX) compared with China (Hang Seng index, HSI), where it is seen that the development in China is significantly more volatile. Note that the US market has surpassed the corresponding stock market in China. The question is whether this means that the market is discounting a better economic development for the USA than China. Regardless, the struggle between the United States and China is increasingly important to follow.

Note: Past performance is not a reliable indicator of future results.

S&P 500 versus SSEC, five years:

We have repeatedly described the unrest around the South Chinese Sea as a potential powder keg for a coming war. However, the lack of semiconductors, as we also described earlier, might be most acute. It will be interesting to see how US president Joe Biden handles rival China. The United States played hard ball under President Trump. The United States and China have now had their first top-level-contacts since the US presidential election in 2020. The tone is stated to be much more relaxed.

Mainland China traditionally sees Taiwan as a part of China. After Chiang Kai-shek lost the Civil War to the Communists under Mao Zedong in 1949, he fled to Taiwan and re-established his rule there. Since then, tensions have been high between mainland China and Taiwan.

Chiang Kai-shek

However, the focal point and the first test for Joe Biden may be the lack of semiconductors.

The Taiwanese company TSMC has emerged as the world´s most important producer of semiconductors. Even Intel has thrown in the towel and let TSMC handle the actual production of the semiconductors. As everyone understands, the availability of semiconductors is completely critical for virtually all production today. It has therefore begun to compare Taiwan´s position as a semiconductor producer with Saudi Arabia´s previous position as a producer of oil. The United States encapsulated Saudi Arabia in its own hemisphere during the 1940s. Strong forces are now underway in the United States to also encapsulate Taiwan in its hemisphere.

TSMC is also building large production in the USA nowadays. The most important signal to follow, however, is how hard the United States will force TSMC to comply with its export restrictions. The United States is happy to use this instrument to prevent the latest technology from reaching Russia and China. If the US uses this hard against TSMC, it would be a double nail in the eye for China. This is since mainland China considers Taiwan to be a part of China.

It is a useful reminder not to always assume that everything that comes from China nowadays is propaganda against the United States.

Note: Past performance is not a reliable indicator of future results.

Above is the development for the SOX / PHLX Semiconductor index, which reflects semiconductor companies in the USA.

Relative stock performance graph- AMD versus Intel and TSMC

Note: Past performance is not a reliable indicator of future results.

The market war between the major semiconductor manufacturers Intel, AMD and TSMC continues.

Nvidia share price graph:

Note: Past performance is not a reliable indicator of future results.

From a purely technical point of view, it may be more interesting to follow graphic card manufacturer Nvidia, which has made several outbursts.

TNX, US 10-year government yield

Note: Past performance is not a reliable indicator of future results.

The most interesting thing that is happening right now is that the US interest rates are falling back quickly. As we previously wrote, it still looks like a short squeeze. When most people went to great lengths to position themselves for rising interest rates due to rising inflation, it became crowded at the door when the market suddenly changed, and they began to position themselves for a lower inflation rate.

The USD strengthened on Friday 11 June on strong consumer confidence. Keep a close eye on this graph as a rising USD typically results in a falling stock market.

At the same time, a bottom listing for the US volatility index (VIX Index) of 15.6 give strength- the lowest level since February 2020. We usually recommend buying VIX when it touches the lower Bollinger Belt, but there is still room left there.

The S&P 500 index is on an upward trend but is currently undergoing a small consolidation that may be about to break. Exponential moving average EMA9 provides continued support followed by rising moving averages MA20 and MA50:

Note: Past performance is not a reliable indicator of future results.

S&P 500 weekly, in a five-year perspective:

Note: Past performance is not a reliable indicator of future results.

 

HYG (an ETF for US high yield bonds), which reflects the risk appetite in the market, continues to rise:

Note: Past performance is not a reliable indicator of future results.

With a little more confidence in risk and given lower interest rates, the tech stocks will benefit again, which means that Nasdaq is starting to move on a broad front:

Note: Past performance is not a reliable indicator of future results.

Nasdaq weekly, five years:

Note: Past performance is not a reliable indicator of future results.

On Friday 11 June, a scarry looking doji was created after Thursday’s large positive move. This means that the risk for a downwards move back towards Fibonacci 38,2 and MA50 has increased.

Note: Past performance is not a reliable indicator of future results.

In the five-year weekly graph below, one can see how the Amazon stock is consolidating, but also being supported by a rising MA50:

Note: Past performance is not a reliable indicator of future results.

 

The Copper price is pushed down by a declining MA20. MA50 is supporting the metal from below. Will MA50 hold yet again?

Note: Past performance is not a reliable indicator of future results.

Copper price weekly, five years:

Note: Past performance is not a reliable indicator of future results.

Swedish Boliden share has been trading relatively strong compared to copper during the last weeks. Will Boliden break out of the wedge formation on the upside if copper manages to bounce on MA50?

Note: Past performance is not a reliable indicator of future results.

Boliden share weekly, five years:

Note: Past performance is not a reliable indicator of future results.

The SEK has also been strengthening against the USD. However, note that the currency pair USD/SEK is trading close to a support and managed to stay above both MA20 and EMA9. Moving average convergence/divergence indicator MACD has also started to rise. A test and break of MA50 would be good news for the Boliden share.

USD/SEK weekly, five years:

The Swedish OMXS30 index is consolidating close to a previous high but supported by EMA9 and a rising MA20:

Note: Past performance is not a reliable indicator of future results.

OMXS30 index weekly, five years:

Note: Past performance is not a reliable indicator of future results.

The German DAX index is consolidating but supported from below by moving average MA20:

Note: Past performance is not a reliable indicator of future results.

The DAX index weekly, five years:

Note: Past performance is not a reliable indicator of future results.

Full name for abbreviations used in previous text:

EMA 9: 9-day exponential moving average

Fibonacci 38.2: One of several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA50: 50-day moving average

MACD: Moving average convergence divergence

Important notice

This information is neither an investment advice nor an investment or investment strategy recommendation, but advertisement. The complete information on the trading products (securities) mentioned herein, in particular the structure and risks associated with an investment, are described in the base prospectus, together with any supplements, as well as the final terms. The base prospectus and final terms constitute the solely binding sales documents for the securities and are available under the product links. It is recommended that potential investors read these documents before making any investment decision. The documents and the key information document are published on the website of the issuer, Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany, on prospectus.vontobel.com and are available from the issuer free of charge. The approval of the prospectus should not be understood as an endorsement of the securities. The securities are products that are not simple and may be difficult to understand. This information includes or relates to figures of past performance. Past performance is not a reliable indicator of future performance.

02-08-2021 05:05:23

 

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