The Disappointing Monetary Stats Were the Trigger of the Selloff.

#Sentiment towards China is now excessively bearish. $HSI(HSI)$ $HSTECH(HSTECH)$ $FTSE China Bear 3X Shares(YANG)$ $CSI China Internet ETF(KWEB)$

China monthly new loan at more than a decade low. It’s about half of last July, and private sectors including both households and private enterprises continue deleveraging . Seasonality cannot explain this weakness fully.

Friday’s on- and off-shore trading in the Chinese markets were beset by all sorts of rumors. There were gossips about some trust funds going bust & trust products could not be redeemed etc. But these rumors have been around for some time and really intensifies during selloff. They really turned into an excuse for the market plunge.

With hindsight, it’s more likely that the disappointing monetary stats were the trigger of the selloff. The market seemed to have sniffed out the bad July lending stats before open. And given that the situation about developers could worsen if nothing is done here, we are even more likely to see more policies underway.

What’s going on with Country Garden is puzzling. It donated to its own charity, paid a hefty dividend to its owner while defaulting on two of its USD bonds. It was disinvited from the regulators meeting with the major developers on Friday. Even so, the property sector tried to stage an afternoon rebound amid heavy selloff, and was actually up YTD.

Sentiment towards China is now excessively bearish. Many have confused long-term structural issues with near-term cyclical headwinds. It’s probably not yet conducive to take risk, but risk/reward balance is starting to skew upward for traders under such prevalent pessimism.

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