Volatility returns to Chinese stocks as regulatory crackdown sparks sell-off
China volatility index surged to the highest in a month as the Shanghai Composite falls for four straight days
Volatility has returned to China’s stock market.
The China volatility index, a gauge of implied price swings for the biggest 50 stocks on the Shanghai exchange in the next 30 days, surged to a one-month high of 10.7 on Wednesday. The benchmark Shanghai Composite Index suffered a four-day losing streak of 3.2 per cent before rebounding less than 0.1 per cent on Thursday.
A pattern of narrow-range trading seems to have been broken as increased regulatory scrutiny of speculative activities, excessive gains in stocks linked to hot thematic investments – those driven by news and events, rather than fundamentals – and concerns about the strength of the economic recovery have triggered a sell-off.
The monthly swing on the Shanghai Composite has widened to 4.6 per cent so far in April, compared with 2.8 per cent a month earlier, which was the lowest since the measure’s inception in 1990.
“The market will probably be in for bigger volatility going forward as there will be increased selling from some investors who want to take profits from hot thematic plays,” said Wu Kan, a fund manager at Shanshan Finance.
A rally in the Shanghai Composite seems to be faltering after the index rose to the highest level of the year last week. New listings of smaller firms, and stocks linked to the creation of a new economic zone in Hebei’s Xiongan area have led the recent declines amid a regulatory crackdown on speculative trading.