Investment bank JPMorgan Chase said the trend of capital flows, the depreciation of the yuan against the dollar, the poor performance of A-shares and the open interest ratio of U.S. stock futures are revealing ominous signals and warned that A-shares are showing signs of replicating the 2015 and 2018 stock market crashes.
The trend of long-term capital inflows into Chinese bonds and equities has recently shown signs of slowing, said JP Morgan analyst Nikolaos Panigirtzoglou on Wednesday (14). net inflows into Chinese onshore bonds fell slightly in March, reversing the trend of strong inflows in January and February. The renminbi, on the other hand, weakened relatively modestly, depreciating about 0.75% against the dollar over the past three months.
This relative currency stability could actually make the de-risking process more fragile, especially if inflows continue to slip lower and synchronize outflows, all signs of which are occurring when mainland stocks are severely underperforming, according to JPMorgan Chase. The MSCI China Index has underperformed the MSCI Emerging Markets Index since mid-February, and the Shanghai Composite Index has fallen more than 2% since the beginning of the year.
The bank notes that the current weakness in A-shares appears to be driven more by speculative winds, similar to the 2018 period, when the Shanghai Composite fell nearly 25% in 12 months. 2015, 2018 and 2020 The sharp declines in mainland financial markets have been accompanied by a substantial correction in global risk markets.
Volatility in U.S. stocks has continued to fall recently, with the VIX index, which tracks volatility in the S&P 500, falling below 17 percent last week. The drop in volatility and the increase in equity parts have caused some investors to worry that the market will be too sensitive to the impact of future contingencies, said Moton.
The analysis also said that a key measure of institutional investor fear is the need for risk aversion, which is currently reflected in the open interest ratio (PCR) in S&P 500 options. PCR has been at a high level since the beginning of this year, coinciding with the trend in 2015, 2018 and 2020, which is an ominous omen.
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