The Deep Dive

China

China dominated headlines Monday morning for a number of reasons, and none of them were good. The 20th National Congress of the Communist Party of China concluded this weekend with President Xi Jinping officially embarking on his third consecutive five year-term and showing no sign of a plan to ever give up control.

Foreign investors rushed for the exits, and pushed the Hang Seng to a 6.4% loss, its largest one-day decline since the Great Financial Crisis. China’s large technology ADRs in the US fell double-digits and the offshore yuan weakened to its lowest level ever. So, just how bad is it? Let’s dive in and explore what the charts say about the world’s second largest economy and its potential impact on the rest of the world.

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Summary: China remains uninvestable for active US investors. This includes China-focused ETFs, but extends to passive EM products and even emerging market ETFs that specifically try to exclude China. While there is undoubtedly linkage in our global economy, the good news is that the correlation between the S&P 500 and major China indexes has been falling dramatically over the past year. The bearish trends in China certainly aren’t bullish for US markets, but they do not appear to be fatal.

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Read about it. Below are several articles if you are interested in what is happening outside of the price action.

• China’s Xi expands powers, promotes allies (AP News)

• Hu's dramatic China congress exit fuels speculation, official silence (Reuters)

• China's Communist Party Congress: A really simple guide (BBC)

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Indexes and ETFs

Hang Seng

The Hang Seng plunged 6.4% on Monday, reaching its lowest level since the depths of the financial crisis. There is little to call support between current levels and the GFC lows. Any rallies back to 16,200 are sells.

Shanghai Composite

The Shanghai Composite isn’t in much better shape. The index only fell 2% on Monday, but has been below its 200-dma since January and was rejected there in early July. 3160 is first resistance, while this long-term uptrend line is important support.

KWEB: Kraneshares CSI China Internet ETF

Monday was a historic day for KWEB. Not only did it suffer its worst ever decline (-14%), but it traded to an all-time low in price.