China's $100 Billion-a-Day Stock Moves Show Trader Angst

(Bloomberg) -- Chinese stocks haven’t been this volatile in years as traders struggle to decide whether the $6 trillion market has bottomed out.

Buffeted by crosscurrents ranging from the trade war and rising defaults to monetary stimulus and cheapening valuations, the Shanghai Composite Index has recorded seven straight swings of 1 percent or more as of Thursday -- the longest such stretch since Chinese markets crashed in 2015. Fluctuations in the country’s market capitalization reached $97 billion or more every day during that period, while intraday moves in the benchmark index have grown the most extreme in 30 months.

The rollercoaster ride continued on Thursday as the Shanghai Composite jumped 1.8 percent, the biggest gain worldwide, on news that regulators plan to reduce barriers for foreign stock investors. The index has been bouncing around its lowest level since early 2016 in recent weeks amid what market watchers describe as a growing divide between bulls and bears. It added 0.3 percent as of 9:53 a.m. local time on Friday.

“There is no consensus,” said Steven Leung, an executive director at Uob Kay Hian (Hong Kong) Ltd. “In these circumstances, lots of investors in China have turned into short-term investors.”

Here’s what other analysts and money managers are saying about the rising volatility in Chinese stocks.

Wang Chen, Shanghai-based partner at XuFunds Investment Management Co.

• Bigger swings show investors are growing increasingly divided over the market outlook.
• Despite expectations that China’s policy easing will put a floor under the market, no one is confident enough to call a bottom.
• Policies unveiled so far aren’t strong enough to eradicate concerns over the trade war, domestic deleveraging and the compound impact on the Chinese economy.
• Investors are gravitating toward short-term trades given all the uncertainty.

Sun Jianbo, president of China Vision Capital Management in Beijing

• Bear market trend led to a rise of day trading.
• Investors fearing steeper declines and short-lived gains will aggravate moves in the near term.
• The market probably won’t bottom out any time soon. Lots of stocks remain expensive and all valuations must come down to reach a bottom.
• The market has yet to fully price in the problems facing China’s economy and we need more clarity on how authorities plan to ease monetary and fiscal policies.

Yang Hai, a Xi’an-based analyst at Kaiyuan Securities Co.

• More dramatic daily swings can only mean one thing: change is brewing. This is something that typically happens when the market is near a bottom.
• China’s stock market is policy-driven, so there will need to be an outside catalyst to pull it out of the doldrums. The market has begun to sense a shift is coming.

Kang Chongli, Beijing-based strategist at Lianxun Securities Co.

• Larger swings may be a sign that the market is beginning to show the first symptoms of warming up.
• In an extended bottom such as this, the turnaround will likely be W-shaped as opposed to V-shaped. When the Shanghai Composite reached the year-to-date low of 2,691 points in July, people were still on the sidelines unconvinced.
• As we seem to be forming the second dip in the “W” this week, some investors are getting edgy and seeing a good opportunity to buy.
• Now the market is still quite tentative about a recovery, but if we top 3,100, we can say with more certainty that we have completed a W shaped bottom.

--With assistance from Sofia Horta e Costa.

To contact Bloomberg News staff for this story: Amanda Wang in Shanghai at twang234@bloomberg.net;Jeanny Yu in Hong Kong at jyu107@bloomberg.net;April Ma in Beijing at ama112@bloomberg.net

To contact the editors responsible for this story: Will Davies at wdavies13@bloomberg.net, Michael Patterson

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