Chinese Equities Stage Modest Rebound After Sharp Decline

Chinese Stocks Test Resilience Amid Iran War Uncertainty

Key Statistics:

• CSI 300 Index: declined 3.3% on Monday, its worst performance since the global tariff shock in 2025.
• Shanghai Composite: slipped below the psychologically important 4,000 level.
• Market Breadth: deteriorated sharply this month, with over 1,100 stocks declining versus rising out of nearly 6,000 names.

Market Indicators

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Chinese stocks have been put to the test by the drag in the Iran war, but key market indicators signal conditions often associated with turning points. The CSI 300 Index tumbled 3.3% on Monday, its worst performance since the global tariff shock about a year ago. Another onshore benchmark slid deeper below the psychologically important 4,000 level.

Fundamentals Remain Firm

Despite the decline, fundamentals have remained firm. Over the past quarter, earnings revisions for the CSI 300 have trended higher, with analysts steadily lifting forward profit expectations even as the index has retreated. The declines have pushed the Bloomberg-estimated dividend yield on the index back to 2.7%, the highest since November.

Breadth Weakness

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Market breadth has weakened despite only modest changes in earnings expectations, suggesting that sentiment rather than fundamentals is driving flows. A further decline would mean there's limited room for things to worsen from here. Historically, such extremes have often coincided with near exhaustion in selling pressure.

Technical Indicators

The Shanghai Composite's 14-day relative strength index has slipped to 23, entering oversold territory. Similar lows were seen in April after President Donald Trump's sweeping tariffs announcement, and again in the third quarter of 2024, shortly before Beijing's policy pivot triggered a re-rating. While oversold readings aren't always a buy signal by themselves, they have typically been followed by rebounds rather than further declines.