China No Longer Epicenter of Volatility to Brokers' Dismay

  • Price swings in stocks, yuan now smallest in at least 4 months
  • Jingxi Investment says hard to make money in equity market

A general view shows the skyline of a central business district in Beijing.

Photographer: Wang Zhao/AFP via Getty Images

China’s investors are finally getting a chance to catch their breath.

After turmoil in the past year rattled global money managers and undermined confidence in the Communist Party’s grip on the nation’s financial markets, gauges of volatility in the benchmark equity index and the yuan have fallen to the lowest levels since at least November.

While increasing stability can be seen as a victory for the authorities, and a relief for international investors now fixated on turbulence in Japanese markets and the upcoming U.S. earnings season, muted price swings aren’t translating into better trading conditions for local brokers amid suspected intervention by state-backed funds.

"It’s difficult to make money from this market now as there are few opportunities to do good trades," said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co. "The national team is also playing the strategy of ‘buying low and selling high’ to seek some price gaps for profit. That’s why volatility is so low. Fundamentally speaking, neither the economy nor corporate earnings are very impressive and we don’t see any catalysts."

Price Swings

Average moves of less than 0.4 percent in the Shanghai Composite Index in the past month are a far cry from last summer’s rout, when daily fluctuations exceeding 3 percent were the norm. A gauge of 30-day price swings on the gauge has declined to the lowest in a year and is less than half the level reached in mid-February, while 10-day historical volatility is below that of Japan’s Topix measure.

Signs of economic stabilization have also helped buoy the nation’s financial assets. The Shanghai Composite Index has rebounded 14 percent since a January low, paring its declines this year to 15 percent, while the yuan has recovered its losses this year after tumbling to the weakest level since 2011.

Factory-gate prices gained in March from the previous month for the first time since 2013, while central bank data last week showing an unexpected increase in foreign-exchange reserves. China’s exports probably rose 10 percent last month from a year earlier, according to a Bloomberg survey of economists before the figures are released Wednesday, while quarterly gross domestic product data will be announced Friday.

State Intervention

The Shanghai Composite fell 0.3 percent at the close after Premier Li Keqiang flagged downward pressures on the world’s second-largest economy. Average daily turnover on China’s stock markets over the past 30 days is just a third of last year’s peak. The yuan was little changed in onshore trading, with one-month implied volatility at the lowest in almost five months.

Movements in the nation’s currency is likely to remain subdued as long as the State Administration of Foreign Exchange stops the yuan from weakening, according to Wang.

"The offshore yuan market has already shrunk to a pretty small scale after the government intervention," Wang said. "Unless the government wants the yuan to depreciate, the market isn’t likely to have very big movements as most speculators have fled the market. The onshore market is under control of SAFE and now the government wants the yuan to be stable."

— With assistance by Shidong Zhang

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