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GOLDMAN: 5 reasons Chinese stocks are getting smoked
(REUTERS/China Daily) Members of an emergency rescue team of a Sinopec oil field carry a mock victim (C) as they participate in a drill simulating a fire incident at a firefighting training centre in Puyang, Henan province.
Chinese stocks are approaching a bear market.
On Monday, the Shanghai Composite plunged 8.5% in its worst single-day percentage decline in eight years. And on Tuesday, the index opened 4% lower, though the session was more mixed.
In a note Tuesday, Goldman analysts highlight five reasons Chinese stocks are selling off.
They are:
The State Council is due to deliver a statement Friday that could signal a wider trading band for the renminbi. Investors are concerned that this could make the currency more volatile and spark a flight of capital out of China.
The July manufacturing PMI fell month-over-month to 48.2 from 49.2 and missed expectations (from the Bloomberg consensus) of 49.7. It's a volatile indicator, Goldman notes, but it could be a signal of weakness in the broader economy for June.
Many investors don't find the risk/reward profile attractive anymore.
The government intervened strongly in the stock market, but that's making investors wary. The whisper is that the government has sponsored about $100 billion of stock purchases — supply that would eventually need to be absorbed.
Foreign investors aren't bullish on the market, either. Goldman has gleaned from recent conversations that the suspension of stocks has soured sentiment toward A shares. Up to 52% of listed companies were suspended at the peak on July 9.
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