Shanghai Index Outlook as Panic Engulfs China Developers

Summary:
• The Shanghai index has pulled back in the past few days even as western indices have slowly crawled back. What nex for the index?

The Shanghai index has pulled back in the past few days even as western indices have slowly crawled back. The index, which is made up of the leading Chinese companies, has dropped from this month’s high of 3,427 to the current 3,261. Likewise, other Asian indices like the Hang Seng and Nikkei 225 have pulled back slightly.

Distressed property sector

The Shanghai Composite is a leading index that tracks some of the biggest companies in China. Most of its constituents are domestic companies that have a minor presence overseas. The biggest companies in the index are China Construction Bank, ICBC, Agricultural Bank of China, China Merchant Bank, and Bank of China, among others.

The Shanghai index has retreated in the past few days as investors anticipate a slowdown in the Chinese economy as global demand slows. Data published this month revealed that the economy had the slowest growth rate in Q1 since 2020. In addition, further numbers show that ocean shipping costs and commodity prices have pulled back in the past few months.

The index has also struggled because of the challenges facing the housing sector. A good number of people in the country have stopped paying mortgages recently. Suppliers have also slowed down their deliveries to developers while Evergrande’s crisis remains. 

Many developers have come under pressure as well. For example, China South City said it will delay its dollar debt as the property sector contracts. It has over $1.6 billion worth of dollar debt. Other struggling Chinese developers are China Vanke, Country Garden, and Seazen Holdings.

Shanghai Index forecast

The daily chart shows that the Shanghai Composite index has been in a strong bearish trend in the past few weeks. It has dropped below the 25-day and 50-day moving averages while the Oscillators have pointed downwards. It is also slightly above the 61.8% Fibonacci Retracement level.

Therefore, the index will likely continue falling as sellers target the key support at 3,000 in the coming weeks. However, this view will become invalid if it rises above the support at 3,308.