Chinese Stock Swings Fall to Record Low as Trading Volumes Sink

Volatility (SHCOMP) in Chinese stocks has fallen to the lowest level on record as investor interest in equities declines and trading volumes slump amid a slowdown in the nation’s economic growth.

The Shanghai Composite Index rose 0.8 percent to 2,040.88, capping its 12th straight day of swings within plus or minus 1 percent on a closing basis. That’s the longest stretch since 2001, data compiled by Bloomberg show. The index’s 50-day volatility fell to 12.5, the lowest since at least June 2004.

“The economy is lackluster and data aren’t convincing enough for investors,” said Wu Kan, a money manager at Shanghai-based Dragon Life Insurance Co., which oversees $3.3 billion. “The index will continue moving in a narrow range.”

Kweichow Moutai Co. led gains by consumer-related companies. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. (600111) and China Minmetals Rare Earth Co. advanced at least 1.6 percent after Reuters reported the country will soon end tariffs and quotas on exports of rare earths. Datong Coal Industry Co. slid 0.9 percent after Citic Securities Co. predicted a more than 50 percent drop in first-half earnings for coal producers.

The CSI 300 Index added 1.1 percent to 2,150.60, while the Hang Seng China Enterprises Index (HSCEI) gained 0.5 percent. A service industry index released by HSBC Holdings Plc and Markit Economics dropped to 50.7 in May from 51.4 a month earlier.

Investor enthusiasm for equities is waning as the economy slows. The four-week average of new stock account openings fell to the lowest level since at least 2007 in the period ended May 23. The 30-day average of trading on the Shanghai exchange slid to 62.63 billion yuan ($10 billion) yesterday, the lowest level since December 2012, according to data compiled by Bloomberg.

Stock Valuations

The Shanghai gauge has dropped 3.5 percent this year and trades at the lowest valuation relative to the MSCI Emerging Markets Index on record, according to data compiled by Bloomberg. The Chinese index is valued at 10 times reported earnings, compared with 13.2 for MSCI’s developing measure. Trading volumes in the measure today were 12 percent lower than the 30-day average.

Gauges of consumer shares rose more than 1.2 percent, paring their losses this year to less than 9 percent. Kweichow Moutai, the nation’s biggest maker of baijiu liquor, climbed 2.4 percent, while Wuliangye Yibin Co., the second largest, advanced 1.9 percent.

Baotou Rare-Earth, China’s biggest producer of the metal, added 3.1 percent while China Minmetals gained 1.6 percent. Rising Nonferrous Metals Share Co. advanced 2 percent.

‘New Normal’

Restrictions on rare earths, tungsten and molybdenum may be canceled next year, followed by export quotas “on other products,” Reuters said, citing an unidentified person in the industry with ties to the government. Calls to the press offices of the Industry and Information Technology Ministry, the Commerce Ministry and the National Development and Reform Commission went unanswered after normal office hours yesterday.

Concern government efforts to bolster economic growth will fail to counter the slumping property market dragged Chinese shares lower earlier this month. President Xi Jinping said in May the nation needs to adapt to a “new normal” in the pace of expansion. Home prices in small Chinese cities will decline in the third quarter, Joe Zhou, Shanghai-based head of East China research at Jones Lang Lasalle, said in telephone interview.

The world’s second-largest economy is projected to grow 7.3 percent this year, which would be the weakest pace since 1990, according to a survey of analysts in May. Expansion slowed to 7.4 percent in the first quarter from a year earlier, compared with 7.7 percent in the previous period.

Datong Coal dropped 0.9 percent. First-half net income for coal producers may fall more than 50 percent from a year earlier on declining coal prices, Guopeng Zu, an analyst at Citic Securities wrote in a report.

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net Richard Frost

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