Chinese stock index futures fall 10%, but snap back in a minute

BEIJING • Chinese stock index futures plunged by the daily limit before snapping back in less than a minute, the second sudden swing to rattle traders last month.

Contracts on the CSI 300 Index dropped as much as 10 per cent at 10.42am yesterday, before recovering almost all of the losses in the same minute.

More than 1,500 June contracts changed hands in that period, the most all day, according to data compiled by Bloomberg.

The China Financial Futures Exchange is investigating the tumble, said people familiar with the matter who asked not to be named because they are not authorised to speak publicly.

The swing follows a similarly unexplained drop in Hang Seng China Enterprises Index futures in Hong Kong on May 16, which heightened anxiety among investors facing slower Chinese economic growth and a weakening yuan.

Volume in China's stock index futures market - the world's most active as recently as July last year - has all but dried up after the authorities clamped down on what they deemed excessive speculation during the nation's US$5 trillion (S$6.9 trillion) equity crash last summer.

Yesterday's volatility had little impact on the underlying CSI 300, which rose 3 per cent.

"Liquidity in the market is really thin at the moment," said Orient Securities Futures vice-general manager Fang Shisheng. "So the market will very likely see big swings if a big order comes in. The order looks like it's from a hedger."

An official at the China Financial Futures Exchange in Shanghai said he could not comment and declined to give his name.

Chinese policymakers restricted activity in the futures market last summer because selling the contracts is one of the easiest ways for investors to make large wagers against stocks.

Volumes shrank by more than 90 per cent from their peak after officials raised margin requirements, tightened position limits and started a police probe into bearish wagers.

The integrity of Chinese markets has come under higher scrutiny in recent months as MSCI considers adding China's domestic shares to its international indexes.

Recent measures to curb trading halts and clarify beneficial ownership rules have improved the country's odds of inclusion to 70 per cent, Goldman Sachs analysts wrote in a report, one of the factors behind the rally yesterday. MSCI will announce its decision this month.

International traders with negative views on Chinese stocks have shifted to offshore markets to bet against them.

Short interest in one of the largest Hong Kong exchange-traded funds tracking mainland shares surged fivefold last month to its highest level in a year, according to data compiled by Markit and Bloomberg.

The CSI 300 has dropped 15 per cent this year, versus a 2.2 per cent gain in the MSCI Emerging Markets Index.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on June 01, 2016, with the headline 'Chinese stock index futures fall 10%, but snap back in a minute'. Print Edition | Subscribe