The suddenly improved performance of Chinese bank stocks has lessened the pressure on Chinese technology companies to continue the 2017 rally. The MSCI China Financials Index rose 0.7% at 4:09PM in Hong Kong on October 3, 2017. The heavyweight Industrial & Commercial Bank of China Ltd. (SHA: 601398) led this rise, extending Tuesday's 7.9% surge.
The MSCI China Financials Index (responsible for capturing "large and mid cap representation across China securities listed on the Shanghai and Shenzhen exchanges") jumped 4.9% on Tuesday, October 3, creating the highest peak in two years. This was after the People's Bank of China issued a 2018 policy reducing the amount of cash that banks are required to hold as reserves. The surge in Chinese bank stocks followed a period where the gauge of financial shares traded at a decade low, relative to the MSCI China Index.
Together, the technology company Tencent Holdings Ltd. (HKG: 0700) and e-commerce giant Alibaba Group Holding Ltd. (NYSE: BABA) account for over half of the 46 percent advance by the MSCI index this year. This suggests that the index is more vulnerable to a reversal in tech companies' fortunes. The potential outcome of a fall in a technology company's progress was made clear when a global technology "sell off" (i.e. a rapid selling of securities) caused the MSCI China Index to drop almost 3% in a single day.
MSCI China's previous peak took place in April 2015. In comparison with 2015, gauges of property and technology shares have risen by more than 60% this year. However, six of the ten industry groups are still underwater, as they were in 2015 (meaning that they are options that would be worthless if they expired today). Furthermore, financial companies are 16% lower now than in 2015, while energy and industrial shares are over 30% lower.