As the world worries about a selloff in the Chinese stock markets – down 9% in the last five trading sessions – one trader believes there’s a buying opportunity to be had.
Jonathan Krinsky, Chief Technical Market Analyst at Miller Tabak, says China is a buy for traders, though perhaps not for buy-and-hold investors.
While US markets were dealing with future tapering of quantitative easing, China was in the throes of a credit crunch last week. The country’s central bank, the People’s Bank of China, said it was cutting down on providing cheap cash to the financial system, money that went to fuel the country’s “shadow banking” system. In some cases, banks found themselves borrowing at 25%.
To allay the markets anxiety, the PBoC added 50 billion yuan ($8.17 billion) into the system on Thursday. This didn’t help and, last night, the Shanghai Composite Index fell almost 6% at one point. Then the PBoC indicated that rates will be guided to a “reasonable range”, leading to a bounce back to 1,870.59. Still, that’s a number last seen in early 2009.
The market’s drop last night was significant to Krinsky because it stayed above what he sees as a downtrend support line that began in December 2011. By holding the line in the face of the tumult, the markets have indicated they won’t move down below it soon.
Over in Hong Kong, the Hang Seng Index last night also held its upwards-sloping support line, this one beginning in 2008, according to Krisnky. He points out that the drop from its May 20 peak to the current levels is 17%, and writes, “this is far from a healthy chart, but if the selling is going to dry up, now is as good of a spot as any.”
With these two support levels holding, what’s the best way to play the Chinese markets? We ask Krinsky about the technicals and Talking Numbers contributor Enis Taner, Global Macro Editor at RiskReversal.com, to look at the fundamentals.
To hear Krinsky and Taner analyze what’s the best position to take on China, watch the video above.