Shanghai Composite struggles while the rest of Asia hits 19-month high

While stock markets in developed Asia like the Nikkei 225 (EWJ, quote) hit 19-month highs, the Shanghai Composite (FXI, quote) continues to struggle.

Image Courtesy Flickr User Quiltsalad: http://www.flickr.com/people/quiltsalad/

Gloomy start to the week for the Shanghai Composite

In addition to Japanese strength, Hong Kong’s Hang Seng exchange (EWH, quote) traded higher — in particular companies with exposure to Western economies – on the back of a better than expected U.S. jobs report on Friday.

In spite of regional outperformance, the Shanghai Composite dropped roughly a third of a percent on Monday. While other Asian economies reacted positively to data from the United States, Chinese data released over the weekend was less bullish.

Retail sales rose 12.3% according to data issued by the government on March 9th; while otherwise impressive, these sales failed to meet analysts’ expectations.  As well, industrial production increased 9.9% over the first two months of the year, the lowest total growth since 2009.

These numbers disappointed traders hoping for a rebound in the Shanghai Composite after data from previous months had indicated a strengthening Chinese economy.

While industrial production for February may not have impressed traders, it’s hard to make too much of these numbers given that they measured growth during the not-so-busy period during Chinese New Year. A more accurate picture of the current state of the Chinese economy will be available when March industrial production numbers as well as other metrics are released later this month and next.

As for the Shanghai Composite, the exchange appears to be stuck in a short-term downtrend ever since making six-month highs in early February. Currently hugging the 50-day moving average, a high-volume break below this important level could see the downtrend in this principal Chinese exchange be extended further; conversely, a new round of positive data could see the exchange test the highs it made earlier last month.

Traders looking to play the Shanghai Composite over the short-term should wait for additional clarity through data or technical before going long or short China.

chart