CHN50 declines as property sector poses potential risk
Further to our previous article, a big Chinese trust company, Zhongrong International Trust Co., is causing concerns because they have not been making payments on their investments lately. This company is typically involved in real estate and has been having trouble with payments on many of their investment products. This, along with home prices going down, is making people worried that the ongoing property crisis in China is making the economy's slow growth even worse.
China's shadow banking sector is about as big as the entire economy of Britain. People have become increasingly worried over the last year because this sector is heavily linked to the property market and poses risks to the overall economy.
If there are defaults in this shadow banking sector, it could have a broad negative impact. This is because a lot of regular people have invested in high-yielding trust products tied to it. If those investments start missing payments, it could make people even less sure about the economy, especially if the government does not step in with stronger measures to help.
Until now, China has been somewhat successful in preventing the troubles from the property sector's debt issues from spreading to the much larger $57 trillion financial industry in the country. Property developers are having trouble paying back what they owe, but this hasn't yet caused major problems for the wider financial system.
Even though China has made many changes to its financial system over the years, the government still has significant control over the banks and the financial markets within the country. However, the recent reports of new defaults have raised concerns that these problems might lead to contagion.
FXCM's CHN50 basket has declined over the last three weeks. It is pulling back to support around the 12,360 level (green shaded horizontal). Of concern, the weekly RSI has dipped below 50 (black ellipse). This is the bearish side of the oscillator. If it maintains on this side, the momentum will be regarded as bearish and the support level may not be able to hold the index's declining prices..png)
References:
www.reuters.com
Russell Shor
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.