China’s RM4.1b-a-day stock moves show rising volatility

Shanghai • Chinese stocks haven’t been this volatile in years as traders struggle to decide whether the US$6 trillion (RM24.42 trillion) market has bottomed out.

Buffeted by crosscurrents ranging from the trade war and rising defaults to monetary stimulus and cheapening valuations, the Shanghai Composite Index has recorded seven straight swings of 1% or more — the longest such stretch since Chinese markets crashed in 2015.

Intraday moves in the index have grown the most extreme in 30 months, while the country’s market capitalisation fluctuated by at least US$97 billion for six consecutive trading sessions through Wednesday.

The rollercoaster ride continued yesterday as the Shanghai Composite jumped 1.8%, the biggest gain worldwide, on news that regulators plan to reduce barriers for foreign stock investors.

The index has been bouncing around its lowest level since early 2016 in recent weeks amid what market watchers describe as a growing divide between bulls and bears.

“There is no consensus,” said Steven Leung, an ED at Uob Kay Hian (Hong Kong) Ltd. “In these circumstances, lots of investors in China have turned into short-term investors.”

Wang Chen, Shanghai-based partner at XuFunds Investment Management Co said: “Bigger swings show investors are growing increasingly divided over the market outlook. Despite expectations that China’s policy easing will put a floor under the market, no one is confident enough to call a bottom.

Policies unveiled so far aren’t strong enough to eradicate concerns over the trade war, domestic deleveraging and the compound impact on the Chinese economy. Investors are gravitating toward short-term trades given all the uncertainty.”

“Bear market trend led to a rise of day trading. Investors fearing steeper declines and short-lived gains will aggravate moves in the near term. The market probably won’t bottom out any time soon. Lots of stocks remain expensive and all valuations must come down to reach a bottom. The market has yet to fully price in the problems facing China’s economy and we need more clarity on how authorities plan to ease monetary and fiscal policies,” commented Sun Jianbo, president of China Vision

Capital Management in Beijing. Yang Hai, a Xi’an-based analyst at Kaiyuan Securities Co opined that more dramatic daily swings can only mean one thing: Change is brewing. This is something that typically hap- pens when the market is near a bottom. China’s stock market is policy-driven, so there will need to be an outside catalyst to pull it out of the doldrums. The market has begun to sense a shift is coming.

“Larger swings may be a sign that the market is beginning to show the first symptoms of warming up. In an extended bottom such as this, the turnaround will likely be W-shaped as opposed to V-shaped.

When the Shanghai Composite reached the year-to-date low of 2,691 points in July, people were still on the sidelines unconvinced. As we seem to be forming the second dip in the “W” this week, some investors are getting edgy and seeing a good opportunity to buy. Now, the market is still quite tentative about a recovery, but if we top 3,100, we can say with more certainty that we have completed a W-shaped bottom,” said Kang Chongli, Beijing-based strategist at Lianxun Securities Co. — Bloomberg