China’s stock sell-off likely to end as indicators show narrower price swings
Although mainland stocks have fallen 6pc from this year’s high, weekly swings on the benchmark index and volatility measures have abated
Even as China’s stocks continue to decline in value, volatility indicators are showing signs of stability in a trend that bodes well for mainland equities.
Although the benchmark Shanghai Composite Index has fallen 6 per cent up to Friday from this year’s high on April 11, weekly swings in the gauge decreased for a third straight week and a volatility measure of the 50 most valuable companies on the Shanghai exchange slid to a record low last week.
Less volatile price swings probably signal that the month-long decline in China’s stock market, triggered by top policy makers’ intensified moves to reduce leverage in the finance industry, may be coming to an end, according to analysts.
“Volatility is kind of the leading indicator for the market,” said Wei Wei, a trader at Huaxi Securities. “The odds are increasing that the index is moving to the bottom.”
The five-day fluctuation in the Shanghai Composite narrowed to 2 per cent last week from 2.6 per cent and 2.1 per cent in the previous two weeks. The China volatility index, a gauge of implied fluctuations for the 50 biggest stocks on the Shanghai exchange over the next 30 days, slipped to a record low of 9 on Thursday.
Other technical indicators are also showing that stocks may rebound at any time. The 14-day relative strength index for the Shanghai Composite, a measure of the rate stocks rise or fall, dropped to 25 on Monday, the second day it was below the 30 threshold indicating stocks are oversold.
