Markets are bracing for a "catch-up" sell-off by
Chinese traders as the world's second-largest economy resumes trading on
Monday.
A week's break for Chinese Lunar New Year could have been a
week of reprieve for financial markets, which have been speculating wildly on
Chinese currency devaluation and demand.
Instead, last week saw savage sell-offs in global banking
stocks, and continued volatility.
Asian shares performed miserably and this risk-off sentiment
is likely to channel through to Chinese markets, says research by Credit
Suisse.
The Nikkei 225 slumped 11 per cent last week, and Hong Kong's Hang Seng Index
(tightly correlated to the mainland's movements) reopened after a three-day New
Year break down 3.85 per cent. CSI300 futures are pointing to a drop of 20
points.
"Under such a turbulent environment, combined with the
Chinese stock market's own plunges in January, Monday's reopening may bring in
heavy volatility to Chinese stocks," said Renee Mu, currency analyst at
DailyFX.
Aussie stocks are set to open higher after the rally in US
and European stocks on Friday, led by financials and miners. But with such
large declines globally over the week, a rocky start to Chinese trading could
put pressure on Australian stocks.
"Given the Australian market is predominantly banks and
miners, expect a strong open locally," said Matt Felsman, private wealth
adviser at APP Securities.
"However, with such declines globally last week, we wait
as China may need to play "catch-up", which could dampen our
enthusiasm."
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