China stocks and yuan volatile as risk aversion prevails ahead of Brexit, MSCI decisions

Chinese stocks and the yuan exchange rate both had a bumpy ride in the first trading days of this week, as risk aversion gripped the markets due to a slew of uncertainties, in particular the MSCI’s announcement on A share inclusion due overnight.

Brokers said other uncertainties include a possible departure of Britain from the European Union after the June 23 referendum, as well as policy decisions by the US and other major central banks at meetings slated for later this week.

In equity markets, mainland China’s Shanghai Composite Index opened lower on Tuesday and swung between small gains and losses for most of the session. It closed slightly higher by 0.3 per cent or 9.12 points at 2,842.19. Nevertheless, the index failed to recoup heavy losses from Monday, when it plunged 3.2 per cent to post its biggest daily fall since February 25. In the first two days of this week, the Shanghai Composite Index slid 2.9 per cent.

“Investors are nervous as they wait for the other shoe to drop on Wednesday, when MSCI will announce its decision on the inclusion of A-shares,” said Xie Cheng, an analyst for Huatai Securities.

“If it were to be included, we would feel a bit more confident about A shares though it isn’t likely to bring in a huge capital inflow,” added Shen Ye, a Shanghai-based hedge fund manager. “If the MSCI opts not to accept A shares this time, a slide in the market can be expected.”

Looking ahead, Cheng isn’t optimistic about the A-share markets in the near term.