China Data Not Enough to Rescue Stocks From Worst Week of 2019

(Bloomberg) -- A week of profit taking in China’s equity market has traders wondering whether the bulk of this year’s rebound is over.

Investors pocketed gains even though improving economic data had only just started to lend legitimacy to the world-beating rally. A report showing exports rebounded in March provided only a brief boost to Chinese stocks on Friday. The Shanghai Composite Index had its worst week of the year, with analysts saying the government may want to contain the amount of leverage in the equity market. Margin debt is nearing 1 trillion yuan ($149 billion).

Traders based overseas joined in on the selling, dumping more than 14 billion yuan of mainland stocks in the six trading days through Friday. They might get some relief next week: better-than-forecast loan data released about an hour after China’s close triggered a spike in index futures.

Everything’s a sell

Not even a bad week for stocks helped revive demand for Chinese government bonds, one of the world’s best-performing assets last year. While the sell-off may make them look attractive to some foreign investors, evidence of an economic recovery and quickening inflation is denting demand. The yield on 10-year debt is near its highest since December, with Friday’s trade data adding more fuel to the bearish case for sovereign bonds.

Looking ahead, traders will want to see how the People’s Bank of China reacts to a $54.6 billion wall of maturing loans next week. The central bank hasn’t injected cash into the financial system for 17 straight days, the longest stretch this year.

One of the world’s snooziest currencies was all over the place as interbank liquidity dried up in Hong Kong. The city’s currency strengthened the most since December at the start of the week, with bearish traders getting squeezed by an increase in borrowing costs. The Hong Kong dollar then weakened, though it subsequently erased the losses on Friday even as interbank lending rates tumbled.

Chart of the week

Hong Kong’s equity market has overtaken Japan to be the world’s third largest. Click here to read more.

Catching up

Here’s what else caught our eye this week:

• Bondholders’ right to be repaid early may be in jeopardy.
• A black hole photo sparks a rush to buy Chinese telescope stocks.
• Top China investor loves this maker of swimming pool flamingos.
• Local government bonds buckle under the strain of huge supply.
• A deadly super fungus is driving a surge in pharma shares.
• Claiming copyright on China’s national flag is a bad idea.
• Winners and losers from the collapse in coal prices.
• Chinese bank stocks are now all the rage after a dire 2018.
• One of AAC Technologies’s biggest holders is offloading its stake.

©2019 Bloomberg L.P.