For traders and investors, ETFs are an easy way out when sectors and individual stocks appear ambivalent.
The two most traded ETFs on the Singapore Exchange S68 are the STI ETF and Lion-OCBC Securities Hang Seng Tech ETF (HSTECH). The latter attempts to replicate the performance of the Hang Seng Technology Index comprising technology stocks listed in Hong Kong which are mainly H-shares.
While both ETFs do not show a strong trending capability — in particular upwards, among the two, the relative strength comparable indicates that the STI ETF is stronger. Despite this, the trading range of the STI ETF is likely to be narrow, with support and resistance at $3.25 and $3.44 respectively.
HSTECH is more volatile and more suited to traders with the ability to buy and sell on short notice. The problem with H-shares is that the Lion-OCBC Securities China Leaders ETF, which is a broad market ETF, looks weaker than HSTECH. Hence, the ability for HSTECH to gain strength is muted and could be affected by weakness in the broad market.
This is being reflected in some of the commentary by market strategists. “After a bumper start, China’s rebound since the end of its zero-Covid policy is underwhelming investors. Earnings estimates are on a downward path, youth unemployment is high, and Chinese consumers haven’t resumed their zeal for spending,” says Andrew McCaffery, global chief investment officer, Fidelity International, in a report.
“There are positives elsewhere, including accommodative monetary and fiscal policies and an improving regulatory backdrop. Further stimulus measures may arrive soon. Meanwhile, the disconnect between the market’s expectation and the reality of the recovery has left Chinese equities trading at a significant discount,” McCaffrey adds.
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The disappointing behaviour of Chinese consumers is reflected in travel. According to Bank of America (BofA) Securities, Thailand’s tourism numbers are disappointing. Pre-Covid, Thailand was a popular destination for Chinese travellers.
“Mainland China arrivals in May came in well below expectation at only 285,547 arrivals or 35.9% of the pre-Covid May 2019 level. According to flight arrival data from Mainland China, the total inbound of 2,860 flights in May suggest a cabin load factor of only 56.5% which deteriorated significantly from 76.4% in April and 68.1% in March,” BofA notes.
For the first five months of the year, Chinese arrivals to Thailand totalled 1.13 million, just 22.6% of BofA’s full-year estimate of five million. Even then, BofA is expecting a tourism recovery in the second half from both Chinese and European arrivals.
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“The Chinese economy is back following years of Covid restrictions but the recovery is being unevenly distributed. In housing, sales are concentrated in top tier cities. A K-shape pattern is emerging among consumers, who appear happy to open their wallets for either cheap goods or luxury products, but less keen on mid-market items. However, this is just the beginning as policymakers have been reiterating their pro-growth stance since April’s politburo meeting. The People’s Bank of China has recently moved deeper into easing mode, cutting some benchmark lending rates after the biggest state banks lowered deposit rates. We think more easing measures are likely to follow, especially as low inflation affords Beijing some room for manoeuvre,” says Lei Zhu, head of Asian fixed income, Fidelity International.
Interestingly, market-watchers are referring to the US recession as the “recession that never comes”. Outside of the US, the slowdown in the manufacturing cycle as evidenced by PMIs including in Eurozone and China, and the challenges faced by the Chinese property sector, could cause a downturn in the US, suggests DBS Group Research.
