JPMorgan-China Equity Strategy Pullback ahead following extreme overb...-110700616

Global Markets Strategy09 October 2024 This material is neither intended to be distributed to Mainland China investors nor to provide securities investment consultancy services within the territory of Mainland China. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. China Equity StrategyPullback ahead following extreme overbought signalsEquity Macro ResearchWendy Liu AC(852) 2800-1087wendy.m.liu@jpmorgan.comJ.P. Morgan Securities (Asia Pacific) Limited/ J.P. Morgan Broking (Hong Kong) LimitedTim Huang(852) 2800-4323tim.huang@jpmorgan.comJ.P. Morgan Securities (Asia Pacific) Limited/ J.P. Morgan Broking (Hong Kong) LimitedErin Zhang, CFA(86-21) 6106 6328erin.zhang@jpmorgan.comSAC Registration Number: S1730521090002J.P. Morgan Securities (China) Company LimitedJoy Wang(852) 2800-2322joy.y.wang@jpmorgan.comJ.P. Morgan Securities (Asia Pacific) Limited/ J.P. Morgan Broking (Hong Kong) LimitedTony SK Lee(852) 2800-8857tony.sk.lee@jpmorgan.comJ.P. Morgan Securities (Asia Pacific) Limited/ J.P. Morgan Broking (Hong Kong) LimitedDubravko Lakos-Bujas(1-212) 622-3601dubravko.lakos-bujas@jpmorgan.comJ.P. Morgan Securities LLCHaibin Zhu(852) 2800-7039haibin.zhu@jpmorgan.comJPMorgan Chase Bank, N.A., Hong Kong BranchSee page 8 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.www.jpmorganmarkets.comChina equities’ furious rally has raised questions of how long this exuberance could last and how to position for laggard catch-up in the coming weeks… On Tuesday, HK traded China equities HSI/HSCEI/HSTECH fell by 10%/10%/13%, taking gains since Sept 24th to 15%/17%/27%. The onshore CSI300 gapped up by 10% at open vs pre-Golden week close but ended the day up by 6% only on record turnover of Rmb3.4trn. The timing of this reversal is in-line with major domestic policy driven rallies since late 2022, where the initial peak arrived between the 12th to 20th calendar day post the triggering event. The short-term tactical question is whether most onshore retail investors planning to buy stocks have placed their orders already. A-share turnover later this week and next week should bring some answers.  Since 2010, indices on average have fallen by mid-single digits after reaching RSI reading >80% (extreme overbought): MXCN/HSI/HSCEI/HSTECH reached their respective peak RSI readings since 2010 (RSI at 93/91/93/88) on 2 Oct. Likewise, HK equities’ short sell ratio dropped to 10.2% (-1.9z) on 30 Sep and reached 13.6% (-1.0z) on 2 Oct and 13.0% on 3 Oct (-1.1z). In Figure 1-4, we show that re