As China’s market turnover sinks to two-year low, stock analysts ask if a turnaround or capitulation is imminent
- Some analysts argue that selling pressure is close to ending and that stocks have a chance of turning around after a three-month setback
- A contrary point of view says fundamentals have not changed and the market still has room to fall
Shrinking turnover on China’s stock exchanges has fuelled a debate among analysts over whether it indicates a market that has bottomed out or one that still has room for further downside.
China International Capital Corp (CICC) and Haitong Securities see the low turnover as a sign that selling pressure is easing and a three-month slide is due for an imminent reversal. In contrast, smaller brokerages including Shanxi Securities, Western Securities and Northeast Securities, say that low volume portends more losses in store.
About 619 billion yuan (US$87.2 billion) worth of shares changed hands in Shanghai and Shenzhen trading exchanges on Wednesday, the least since late October 2020, according to Bloomberg data. That was also about one-third below the daily average transaction this year. The CSI 300 Index has almost erased all of the 19 per cent rally since the low in April.
Market bulls have history on their side. When turnover fell to such a level two years ago, the CSI 300 rose 6 per cent in the ensuing month and 16 per cent over a three-month course. On a 12-month horizon, the gain narrowed to 4.2 per cent.
“The current economic scenario is better than the end of April,” said Xun Yugen, a strategist at Haitong Securities, the nation’s bigger brokerage by revenue. “The risk premium is now close to what it was in April. That means the market has largely digested the risks.”
