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Chart of the day: Volatility bodes well for China’s big-caps

PUBLISHED : Tuesday, 31 October, 2017, 1:07am
UPDATED : Tuesday, 31 October, 2017, 1:07am

The biggest 50 companies on the Shanghai Stock Exchange and their respective implied volatility index are diverging in direction. The SSE 50 Index rose to a two-year high on Friday while its expected volatility was near the lowest level in five months. The divergence probably means the two-year uptrend on China’s big-cap shares would continue. Investors have been rotating into big companies over the past year as policymakers tighten liquidity to crush bubbles of small-caps and earnings pick up amid a stabilisation in the country’s economy. The SSE 50 has advanced 23 per cent so far this year to become the best performer among China’s major stock benchmarks. A rise in the volatility index usually suggests the panic sentiment on the market whereas a drop means investors are bullish on equities.

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