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Shanghai Index: An Outlook For China Shares

  • Shanghai Index: An Outlook For China Shares

    Despite the potential for Chinese stocks, there are still headwinds. The soaring U.S. dollar has hit 20-year highs and the Federal Reserve has aggressively raised rates. That is an incentive for U.S. investors to remain in domestic markets in the near term.To get more shanghai stock exchange news, you can visit shine news official website.

    However, another big problem for investor appetite is Taiwan. After a tense diplomatic visit from U.S. politicians recently, hostility between the two sides remains. This week saw a deal by the United States to sell $1.1bn of arms to the Asian country. Taiwan has agreed to purchase military equipment which includes anti-ship and air-to-air missiles in a move that angered Beijing.

    China said the deal "severely jeopardizes China-US relations and peace and stability across the Taiwan Strait. China will resolutely take legitimate and necessary counter-measures."

    Having watched the Russia sanctions play out, an escalation of tensions in the Taiwan Strait could lead to pressure on institutional investors. A recent Washington Times article has already suggested that with the tagline: "It's past time to implement every possible tool to halt the funding of a military adversary."

    The piece singled out firms like BlackRock (BLK) and Vanguard for holding exchange-traded funds ("ETFs") that "...contain Chinese companies involved in the building and modernization of China's military."

    There are also domestic problems with continued lockdowns and a weakened property sector. BlackRock itself has been joining other firms in cutting exposure to Chinese junk bonds. But there are hopes of a bottom in that market after recent government intervention. An August rate cut and other measures saw China's high-yield dollar bonds having their best returns in 10 years.
    The Chinese stock market is still lower than its 2015 highs, with prices locked in a tight range since 2016. The upside resistance is at 3,700 while an uptrend line from 2013 sits around the 2,900 level.

    Chinese stocks have outperformed the U.S. and Europe since the January selling. The outlook is still negative for Europe heading into the winter, but there are still obstacles to significant institutional investment in the mainland. A rising U.S. dollar and interest rates are boosting domestic investment opportunities, while Taiwan tensions remain. This could see pressure on Wall Street firms to stay away despite the recent U.S. and China audit deal. There is definitely a case for considering China stocks over Europe, but U.S. stocks could have a greater pull in the near term.