EBC Markets Briefing | China stock indices diverge after reopening

China’s A50 lost some momentum the first day after the National Day holiday, while the Hang Seng index plunged more than 10% in early trading. That signals a bumpy road ahead of FOMO buyers.

Goldman Sachs upgraded its call on Chinese stocks to overweight, as it joined a camp of optimists, predicating the nation’s equities could rise another 15%-20% if authorities delivered on policy measures.

Wall Street heavyweights including HSBC and BlackRock have turned bullish as expectations grow that the once-beaten down stock market has finally turned a corner. But some remain sceptical of the reversal.

Invesco noted “some stocks have become really overvalued” and they lack a clear value proposition based on their likely earnings performance. Profit taking and US elections are other potential headwinds.

“Many investors would argue that the US view of China as an economic and geopolitical rival …,” according to JPMorgan Asset Management, so they may wait for economic data to bottom out to add exposures.

Yuan traders will be watching out for the central bank’s daily reference rate, the level around which the currency is allowed to trade. The onshore yuan has strengthened more than 1% in the past month.

The Hang Seng index fell sharply but stayed well above the high around 19,800 hit in May. Its volatility will likely remain high in the next sessions, and a break below the key 20,000 level could end the animal spirit.

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