Photographer: ChinaFotoPress/ChinaFotoPress via Getty Images

World's Worst Stock Market Sees Recovery Signs

  • Shanghai Composite's 1Q loss narrows to 15% on March rebound
  • Margin lending, new investors, ChiNext are positive indicators

China’s Shanghai Composite Index is closing out the first quarter as the world’s worst-performing global measure, down 15 percent, with a rebound in March failing to compensate for a terrible start to the year. 

Here are some key metrics that may show this month’s 12 percent recovery may extend into April, including growth in margin lending, a jump in the number of new investors and easing volatility.

Leverage is increasing, suggesting individual investors are slowly regaining confidence after getting burned last year. The value of outstanding margin loans, the fuel for the 2015 boom, is up about 6 percent to about 874 billion yuan ($135 billion) since touching a 15-month low on March 16. A state-backed agency restarted offering some loans to brokerages to fund clients’ borrowed bets, signaling a loosening of policies put in place to stem the market rout.

Volatility is receding. Thirty-day price swings in the Shanghai gauge have plunged since soaring to a four-month high in February. Volatility began to rise at the start of January, when regulators introduced a circuit-breaker system meant to reduce wild market movements. The circuit breakers had the opposite effect -- trading was suspended twice in the first week due to steep declines before the mechanism was shelved altogether.


The ChiNext index re-entered a bull market this month, rebounding 20 percent from a February low. The small-cap gauge, dominated by technology and consumer companies, has become a leading indicator for the Shanghai index. It entered a bull market in October, a month before the large-cap gauge did, and lapsed into a bear market a week before the Shanghai gauge followed suit.


The number of new stock investors rose to a nine-month high of 535,000 in the week ended March 25, as a rebound in margin trading and a market recovery led more people to open trading accounts. Retail investors account for 80 percent of stock trading.

 
While the valuation of the Shanghai Composite is almost down 40 percent from a June high, it’s still 15 percent pricier than the MSCI Emerging Market index, according to data compiled by Bloomberg. Almost 60 percent of the 240 Shanghai-listed companies with full-year earnings estimates compiled by Bloomberg have missed projections so far.

— With assistance by Shidong Zhang

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