Chart of the day: Sentiment shifts on Chinese shares
A testing week for global equities has seen sentiment measures broadly back away from excessive optimism territory, with a bout of market uncertainty most keenly felt in the euro zone also weighing on Asian shares. The sentiment barometer index (SBI) for China merits particular attention, especially when viewed in a regional context. The ASR China SBI against the Asia ex-Japan SBI dropped into excessive pessimism territory in May - a notable development given that historically over the past 10 years, an SBI reading below five has been followed by an average return of 2 per cent over the following 65 days. Since then, sentiment has begun to revive. With global equities jittery in the near term, the sentiment shift on China could make it a relatively safe play.
David McBain is a strategist at Absolute Strategy Research