Chinese equities have fallen again amid fragile investor sentiment

　　Chinese equities fell across the board again today, with CSI300 diving 3% and MSCI China losing 2.2%. Sector-wise, YTD outperformers telecoms and industrials dropped the most today in the A-share market, while healthcare and financials saw the smallest losses (Figure 1). In the H-share market, similarly, YTD outperforming sectors materials and industrials underperformed today, while staples and IT led (Figure 2). Since their respective recent peaks on 8 June and 27 April, CSI300 is down 5% and MSCI China has corrected 11%. This continued index weakness is consistent with our call of an extended near-term market consolidation, previously elaborated upon in a series of reports since mid-April (Figure 3 and Figure 5).

　　Today’s market slump reminds us of what happened on 28 May - that, ostensibly, one would blame 1) worries about tighter liquidity (no rate or RRR cut was seen last weekend, rates start to pick up before semi-annual ends, mega-size A-share IPO to lock up a record large amount of funds this week, etc.), 2) intensifying CSRC disciplinary actions (reiteration of tighter rules on shadow margin financing and announcement of significant progress in 19 out of the 50 cases of market manipulation under investigation), and 3) escalating shareholder sales (e.g. China Life sold Minsheng Bank and raised Rmb2.6bn).