Shanghai Composite Struggles, While Rest Of Asia Breathes Sigh Of Relief

by: Emerging Money

By Sean Geary

The Shanghai Composite (NYSEARCA:FXI) ended the day roughly flat, down less than 0.1%. However, juxtaposed to other Asian markets' performance and inter-day market action, the Shanghai Composite traded disappointingly to start the week. On the back of news that Cyprus would agree to the terms of a bailout, Asian markets rallied after suffering their worst week since August. The Nikkei 225 (NYSEARCA:EWJ) jumped 1.7%, the Kospi (NYSEARCA:EWY) rose 1.4%, and the Hang Seng (NYSEARCA:EWH) ended up 0.7%. However, the Shanghai Composite was unable to mimic the performance of its Asian counterparts, despite opening up sharply higher on the back of earnings.

China Petroleum and Chemical Corp. (NYSE:SNP) and China Construction Bank (OTCPK:CICHY) both posted higher-than-expected profits, helping to lift stocks in Hong Kong. But the expected boost that these companies' positive reports should have given to the Shanghai Composite as a whole did not materialize. The market jumped early on the news, but this move was only temporary. Within the first hour of trading, the Shanghai Composite was already in negative territory. This price action in the Chinese benchmark index is troubling for traders looking for the exchange to move higher.

The Shanghai Composite traded erratically last week, suffering major losses early in the week after the initial details of the Cyprus bailout were released. It then saw those losses erased midweek after Tom DeMark called a short-term bottom in the exchange and the HSBC Flash PMI came in better than expected.

However, these positive catalysts were insufficient to propel the index out of its short-term downtrend. Today's mediocre price action could indicate that the Shanghai Composite has further to fall before it finds its bottom. If the Shanghai Composite is to attain the large gains predicted by pundits over the next several months, the exchange will have to start to outperform on days with plenty of positive news.