Chinese Stock Volatility Rises to Three-Month High Before MSCI

Updated on
  • ICBC paces gains by banks as property shares drop in Shanghai
  • Market nervous on uncertainty over A shares’ inclusion: Huaxi

Volatility in Chinese stocks climbed to the highest in three months before MSCI Inc. announces its decision on whether to add yuan-denominated trades in its global indexes.

A gauge of 10-day price swings on the Shanghai Composite Index increased to the highest level since March 14. The benchmark equity gauge rebounded 0.3 percent after tumbling 3.2 percent on Monday. Industrial & Commercial Bank of China Ltd. paced gains by financial companies while property developers declined.

MSCI will announce early Wednesday morning Hong Kong time whether China’s domestic equities will be added to its global benchmark gauges -- a move that would initially spur inflows of as much as $30 billion, according to HSBC Holdings Plc. The pick up in price swings comes after volatility gauges fell to multi-month lows in May as turnover slumped. While economic activity remains subdued, there are few signs the government will add to stimulus as officials try to rein in a growing debt burden and stop capital outflows.

“The market is getting a bit nervous before the MSCI decision as we are not totally sure that the shares will be joining global indexes,” said Wei Wei, an analyst at Huaxi Securities Co. in Shanghai. “There will probably be some volatile trading going forward as lackluster economic data are expected to pressure the market.”

The Shanghai Composite rose to 2,842.19 at the close after changing direction at least 11 times. The Hang Seng China Enterprises Index slipped 0.4 percent. The Hang Seng Index dropped 0.6 percent, taking its loss over a three-day period to 4.3 percent.

ICBC, the nation’s largest lender, rose 0.7 percent among financial companies in Shanghai. Shanghai Lujiazui Finance & Trade Zone Development Co. dropped 1.9 percent to pace losses for a measure of mainland property developers. Xiamen C & D Inc. plunged 11 percent as the investment holding company with business interests in property and logistics resumed trading after being suspended for nearly a year.

Shares of Baidu Inc. fell 5.4 percent from Monday’s close in U.S. after-hours trading, after China’s biggest Internet search engine cut its revenue forecast for the second quarter, saying regulatory restrictions reduced advertising from drug companies and other health-care groups.

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The increase in stock volatility came amid some weak economic indicators and a wave of risk aversion in Asian equities on mounting concern over the U.K.’s vote on European Union membership this month. Official data released on Monday showed China’s fixed-asset investment in the first five months trailed all 38 economists’ forecasts. The central bank is likely to release May data on new lending and aggregate financing as early as Tuesday.

The addition of A shares to MSCI’s global benchmarks would offer investors greater access to companies in the world’s second-largest economy and stock market. The index compiler, which has been considering whether to include mainland-traded Chinese shares since 2013, has twice put off the approval, citing concerns about market accessibility among other reasons.

Goldman Sachs Group Inc. said last month the odds of A shares’ inclusion have risen to 70 percent from 50 percent on the government’s efforts to curb trading halts and clarify beneficial ownership rules. Their addition to MSCI’s indexes is a “historical certainty” that will eventually happen, Qi Bin, the head of the China Securities Regulatory Commission’s international affairs department, said over the weekend in Shanghai.

— With assistance by Shidong Zhang

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