China’s core consumer inflation growth for July paints a grim picture, indicating that the current stimulus measures are falling short in combatting deflationary pressures. This has led to the 10-year China sovereign bond yield hitting a record low of 2.12% on 05 August, showcasing the severity of the situation.
Following our previous report on the Hang Seng Index, which highlighted weak key China data and the resurgence of Trumponomics, the index has continued its downward trend. In the past four weeks alone, it has dropped by 8.7%, reaching an intraday low of 16,441 on 5 August.
The lacklustre macro data from China and the absence of concrete stimulus measures have prevented the Hang Seng Index from repeating its bullish performance seen earlier this year. This indicates a challenging environment for investors looking to capitalize on the market.
Understanding China’s Inflationary Growth and Deflationary Risks
Although China’s headline consumer inflation for July showed a slight increase to 0.5% year-on-year, driven by seasonal food inflation, the overall demand remains weak. The core inflation rate, which excludes food and energy products, declined to 0.4% year-on-year in July, marking the fifth consecutive month of lacklustre growth.
Market response to the persistent deflationary risks has pushed the 10-year China sovereign bond yield to a record low of 2.15% in July, highlighting the concerns surrounding the economy’s stability.
Implications for Investors: Bearish Breakdown and Potential Downside Pressure
From a technical analysis perspective, the Hang Seng Index has experienced a bearish breakdown below key support levels, signaling a potential shift towards a bearish trend. Investors should be vigilant and monitor the medium-term support levels at 16,055 and 14,600 to gauge the index’s future performance.
Only a clear breakthrough above 18,000 could reverse the bearish sentiment, with resistance levels at 18,530 and 19,710 to watch out for.
Overall, the current economic landscape in China poses significant challenges for investors, with deflationary risks looming large. It is essential to stay informed and make informed decisions to navigate these turbulent times effectively.