Equities around the world have been looking to close out the quarter on a positive note, and China was no exception. With trade US and Chinese trade negotiators reportedly making progress in the always on the horizon trade deal, the Shanghai Composite ripped 3.2% higher in the last trading day of the quarter and nearly erasing all of the week’s prior losses. For the entire quarter, the index finished up just a hair shy of 24%, putting it at the top of the list in terms of major international stock market returns. While Chinese stocks finished the quarter strong, it is important to point out that during this consolidation phase the index has been in for the last several weeks, it has made a couple of lower highs. Ideally, we would like to see some follow-through next week from this Friday’s rally to break that string.
One factor working in favor of Chinese equities is solid breadth. The chart below compares the performance of the Shanghai Composite to its cumulative A/D line over the last twelve months. Ever since late last year, breadth has been leading price to the upside. It started with a positive divergence in late 2018 when prices made a new low (red line) but breadth (blue line) hung in there and has continued right up through the middle of the month when the cumulative A/D line made a new high. As long as that trend continues to play out, Chinese stocks should continue their leadership.