By Samir Al Khoury,

After the CSI300 index reached 3,703 points on May 20, 2024, its highest level since October 12, 2023, a downward trend began, with the index declining by approximately 7% from the peak (3,703) to yesterday’s session (3,460).

It seems that negative momentum for Chinese stocks will prevail in the next stage, especially since the Relative Strength Index (RSI) is currently at 29 points, placing it in the oversold zone.

Several negative factors may continue to put pressure on Chinese stocks, including:

• Declines in some Chinese economic data, such as the fixed asset investment and industrial production indices, which recorded lower-than-expected annual percentages in May.

• The Consumer Price Index (CPI) recorded a 0.3% growth in May, far below the 3% inflation target.

• The real estate sector, representing approximately 30% of China’s GDP, remains volatile.

• A decline in appetite and investment flows for Chinese stock exchange-traded funds.

• A slowdown in stimulus measures taken by the Chinese authorities.

• Continued tensions between China and the United States regarding trade and technology, including mutual restrictions on chips.

However, despite these negative factors, there are positive aspects that may support Chinese stocks, such as:

• Some Chinese economic data exceeded analysts’ expectations. For instance, retail sales grew by 3.7% on an annual basis in May, surpassing expectations (3.0%) and the previous reading (2.3%).

• Chinese stock valuations are considered very low compared to other global stocks, such as Japanese and American stocks. For example, the P/E ratio for the CSI300 index is approximately 10.

The technical picture does not appear encouraging for Chinese stocks. The CSI300 index is currently trading at 3,460 points, below the 50-day moving average (3,583 points) and the 200-day moving average (3,530 points).

The DMI+ positive movement index is approximately 9 points, compared to the DMI- negative movement index at approximately 35 points, indicating strong selling pressure. Additionally, the ADX trend strength index is about 32 points, above the 25-point threshold, signifying strong momentum in the downward trend.

Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.

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