​The HSCEI 9,000 Conundrum: A Potentially New And Destabilising Environment

The outlook for China in 2016 is mixed among equity strategists: some argue that China’s stock market will bounce back next year driven by quality growth, momentum from fresh reform, among other areas, leading to foreign fund inflows to recommence. Others see deteriorating profitability in sectors such as banking, materials and energy dragging China’s stock market lower. Should bearish investor sentiment surrounding China persist, it could lead to the HSCEI spot sliding to 9,000. And in an environment of declining spot and locally contained risk aversion, longer-dated volatilities could come under significant pressure as exotic desks buy back vols at a rapid rate.