Calm returns to China’s stock market after US$1.3 trillion rout

Stocks had plunged earlier in May as the US raised tariffs on Chinese imports and threatened to blacklist the country’s tech firms . (AFP pic)

SHANGHAI: Investors are taking a breather from the recent market rout that has wiped out almost US$1.3 trillion from China’s stock market.

The CSI 300 Index hasn’t moved more than 2% in either direction in the past seven sessions, the longest streak of calm since February. The index closed 1% higher Tuesday. Volatility has dropped too, with a 10-day measure on the gauge which comprises some of the largest listings on the Shanghai and Shenzhen stock exchanges – falling from a 7-month high this month.

Stocks had plunged earlier in May as the US raised tariffs on Chinese imports and threatened to blacklist the country’s tech firms including Huawei Technologies Co. and surveillance equipment maker Hangzhou Hikvision Digital Technology Co.

The muted market follows a recent acceleration foreign selling across the border. Offshore investors net sold mainland shares via the exchange links for eight sessions through Monday, the longest run of outflows since early 2017, data compiled by Bloomberg show. They turned net buyers on Tuesday, snapping up 5.6 billion yuan (US$810 million) of A shares, the most in two months.

A momentum indicator on the CSI 300 Index has stabilised in the past few weeks, moving away from a level that signaled it was oversold. Trading volume has withered on the mainland markets, with turnover shrinking over seven consecutive weeks in the longest stretch on record. Volume on the index was only about 60% of its daily average in the past three months.

Investors may be trying to strike a balance after absorbing the recent shocks from the trade talks between China and the US, according to Gerry Alfonso, director of the international business department at Shenwan Hongyuan Group Co.

“There are no big surprises recently with investors gradually digesting the new overall macro environment,” Alfonso said. “The most reasonable thing to do is to focus on company fundamentals and find mid-term opportunities without having to commit heavily on the overall direction of the market.”