Trading of Chinese stocks on Shanghai Stock Exchange hits 4-year low as investors flee market

Don’t bet on traders piling back into China stocks any time soon.

Trading values on the Shanghai Stock Exchange, Asia’s second largest, slipped below the 100 billion yuan (US$14.6 billion) mark on Wednesday for the first time in four years.

Shares worth 98.4 billion yuan changed hands on the Shanghai bourse, the lowest level for a full-day trading session since August 29, 2014, when 92.8 billion yuan in turnover was recorded.

Combined trading values on the Shanghai and smaller Shenzhen exchanges also shrank to a four-year low on Wednesday, according to Bloomberg data.

Traders brace for a rough ride as volatility returns to China’s once-placid stock market

The Shanghai bourse had a turnover of as low as 79.6 billion yuan on January 7, 2016, but the transaction lasted for less than 20 minutes before trading was halted for the rest of the day by a circuit breaker system that was later scrapped.

While some investors argue that decreased trading activity is an auspicious sign that the market may bottom out soon because of subsiding selling, traders from brokerages including Huaxi Securities say it is simply a scenario of investors shunning stock trading that will further weaken market sentiment. Buffeted by the trade war with the US and a deleveraging campaign, China’s benchmark Shanghai Composite Index has already sank 18 per cent so far this year, making it the worst performer among the world’s major markets.

China’s stock exchanges cede Asia crown to Japan as investors flee Chinese equities amid trade war

“It’s a reflection of the lack of confidence in the market, and investors aren’t willing to buy and are continuing fleeing the market,” said Wei Wei, a trader at Huaxi Securities in Shanghai. “The turnover could drop further, so I would be cautious about saying that the market is close to a bottom.”

The current level of trading values probably indicates the market has not full capitulated and sell-off has yet to dry up, if history is any guide. The daily turnover on the Shanghai exchange averaged 77 billion yuan in the first half of 2014 and the lowest trading value was only 47.8 billion yuan in the period, according to Bloomberg data. That preceded the last bull market that sent the benchmark to more than double in the following 12 months.

The Shanghai Composite rose 0.4 per cent to 2,724.63 at the close on Thursday, with trading values rebounding to 107.8 billion yuan.

Still, some brokerages including Essence Securities say China’s stocks have already exhibited some features of a bottom, pointing to battered valuations, a record amount of share buy-backs from listed companies and persistent fund inflows from foreign investors.

Foreign investors snap up battered Chinese stocks as trade war fears persist among local traders

The Shanghai Composite is valued at 13.1 times earnings, compared with its 10-year average of 16.3 times, and overseas investors have poured 237 billion yuan into the mainland’s stocks through the exchange links with Hong Kong this year, Bloomberg data showed. Chinese publicly traded companies have already announced plans to spend a total of 20.6 billion yuan buying back shares in 2018 to prop up prices.

For the market to reverse the downward spiral, investors need to see either an inflection of the deleveraging or an acceleration of reform measures, according to Haitong Securities, which was ranked No. 1 for equity strategy research by the New Fortune magazine last year.

“It still takes time for the market to build up a bottom,” said Xun Yugen, a strategist at the Shanghai-based brokerage. “The turnaround in the sentiment needs strong signals.”