Plunge in China's Stocks Hasn't Been Caused By Futures, Wang Lianzhou Says
China’s stock market decline shouldn’t be blamed on index futures, China Securities Journal cited Wang Lianzhou, former deputy director of National People’s Congress’ financial and economic committee, as saying.
The benchmark Shanghai Composite Index entered a bear market last week, falling more than 20 percent from the November peak, on concerns about government measures to tame the property market and the effects of the European debt crisis on exports. Investor Mark Mobius said May 14 the start of derivatives trading in China may be adding pressure to the stock market.
“This, of course, will create more volatility,” Mobius said. “So I’m not surprised that you have a downturn like that. I don’t think that’s a problem.”
Futures, or agreements to buy or sell the CSI 300 Index at a preset value, began trading on the China Financial Futures Exchange in Shanghai on April 16, while margin trading and short selling was introduced March 31. The May futures contract, the most active, slid 3 percent to 2,775.2 today. Volume reached a record on May 12, a day after the Shanghai Composite entered its second bear market in nine months.
The volatility of the stock market was larger before the introduction of index futures, the report cited Wang as saying.
Li Maoyu, an analyst at Shanghai-based Changjiang Securities, said the stock market’s recent selloff was mainly because of concerns about the domestic economy.
China International Capital Corp. on May 10 cut its estimate for China’s economic growth this year to 9.5 percent from 10.5 percent, citing property tightening measures and overseas “uncertainties.” The economy expanded 11.9 percent in the first quarter from a year earlier.
‘One of the Reasons’
“The stock index futures can increase the market volatility in the near term, and is one of the reasons leading to such a big fall but is not the main reason,” Li said.
China’s growth is “strong” and a leading economic indicator rose “sharply” in March, The Conference Board said today, publishing the data for the first time.
Bill Adams, a Beijing-based economist for The Conference Board, said that the “front-loading” of real-estate projects ahead of government controls on the sector may have contributed to the gain.
The economic expansion is “unlikely to accelerate further through the summer months,” he said.
China introduced index futures and margin trading in an effort to provide additional hedging tools for investors. The derivatives will “tame asset bubbles over time” and lower the long-term price-earnings average, Michael Kurtz, head of China research at Macquarie Group Ltd., Australia’s largest investment bank, said last month.
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