Introducing our China Stress Index
NWM has created a China Stress Index (CHSI) to capture investors’ general level of concern towards China (e.g. perception of the growth and policy outlook, reaction to discrete events, various news headlines and/or critical data releases etc). The index includes six market indicators: 1) US dollar Chinese Yuan (USDCNY) spot, 2) Shanghai Composite Index, 3) the Shanghai Interbank Offered Rate (Shibor) 3-month rate, 4) the 10-yr Chinese Government bond yield, 5) copper and 6) zinc spot prices.
The CHSI has been rising since late April/early May, when trade talks between the US and China broke down. The index has moved up sharply over the last week. However, the overall level of concern still looks to be less than that registered in late-2018, when fears over a hard-landing in China dominated. Also, the magnitude of the rise in stress is smaller than the increase seen in the mid-June to mid-July 2018 period when the first round of tariffs was implemented.
One reason the reaction remains restrained may be that market participants believe Chinese policymakers will take action to ensure that China’s growth rate is sustained. Both the People’s Bank of China (PBoC) Governor Yi Gang and PBoC Party Secretary Guo Shuqing have said that China has ample room for further easing if trade war worsens and China’s domestic economic growth momentum remain resilient. This soothing chorus from central bank officials has somewhat calmed the market sentiment.
In any case, the situation remains fluid and we will continue to use the CHSI to assess market sentiment in the wake of any developments.
NWM China Stress Index
Source: Bloomberg, NatWest Markets
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10th June 2019