23 Oct

Shanghai Composite: Does a Death Cross Await?

WRITTEN BY Rabindra Samanta

On October 23, the Shanghai Stock Exchange Composite Index was down 0.4%. Among the major sectors, technology and utilities were in the green. The remaining sectors were in the red. Based on a media report, weakness in the real estate sector affected the index in the day’s trading.

As cited by CNBC, China’s “new loan prime rate” was unchanged in October on a month-over-month basis. Central banks across the globe are reducing interest rates. However, the People’s Bank of China might have adopted a different approach.

Nanhua Futures’ Xu Chenxi said that central banks won’t lower interest rates quickly. He also said that the central bank doesn’t want consumers to develop expectations for higher inflation. He added, “The policy is more concerned with its transmission to the real economy.” If the “real economy” is getting financed more easily than before, the People’s Bank of China will avoid any signal for a rate cut, according to the fixed income analyst.

Shanghai Composite: October so far

However, this month, the index has risen 1.3% as of today’s closing level. For the second consecutive month, the index is in an upturn. In August, when the trade war escalated, this index lost 1.5%. During the same month, the S&P 500 Index lost around 1.8%. The progress in US-China trade talks might have led to the recent rise in the Shanghai Composite Index. Read China’s Slowdown: Will Trump Get Better Terms? to learn more about the current progress of the trade talks.

World’s major indexes

In 2019 so far, the Shanghai Composite Index has risen around 19.9%. In this period, the S&P 500 Index outperformed the Shanghai Composite Index by 2.5 percentage points. Among the top five economies, Britain’s FTSE 100 Index has seen the lowest rise. Concerns surrounding Brexit might be behind the index’s single-digit gain. Despite Germany’s recession fears, the DAX has risen 22.4%.

Shanghai Composite’s moving averages

On October 23, the Shanghai Composite Index closed 0.6%, 0.5%, and 1.4% above its 50-day, 100-day, and 200-day moving averages, respectively. However, the index is below its 20-day moving average, indicating short-term weakness. Moreover, its 50-day moving average is just 0.8% above its 200-day moving average.

If the index’s 50-day moving average falls below its 200-day moving average, it might trade in the bearish zone. This type of moving average crossover is known as a “death cross.” Any positive development related to trade talks might help the index avoid a death cross. 

Chinese ETFs and stocks

On October 22, the iShares China Large-Cap ETF (FXI) lost 0.7%. On the same day, Chinese e-retailer Alibaba’s (BABA) stock price also fell 2.1%. JD.com (JD) and Baidu (BIDU) also fell 2.5% and 0.7%, respectively. A 0.4% fall in the S&P 500 Index might have dragged on these stocks. On the same day, the Shanghai Composite Index rose 0.5%.

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