Post Reply
1-1 of 1
By Chris Oliver, MarketWatch
HONG KONG (MarketWatch) -- China's institutional investors are believed to be the catalyst behind the market's volatile moves in recent weeks, including Monday's 6.7% tumble, the biggest single-day fall in 15 months.
The scale of the recent daily moves point to large fund flows that are the hallmark of institutional investors and exchange-traded funds, strategists say.
"Retail investors cannot have such power and cannot create such huge volatility," said Castor Pang, a Hong Kong-based strategist with Sun Hung Kai Financial.
The Shanghai Composite index has fallen about 23% since touching its recent high on Aug. 4, after more than doubling in value since Oct. 31. That outpaces the 9% fall in value during August for the shares of Chinese companies listed in Hong Kong -- in many cases the same companies showing wild volatility on the Shanghai exchange.
Wednesday's action offered further evidence of this decoupling between the Hong Kong and mainland China, with the Shanghai Composite up 0.9% and Hong Kong's Hang Seng down by 1.6%.
Who's playing?
The flow of funds into Asian mutual funds has slowed dramatically, easing to $203 million in August from $3.6 billion a month from April through July, according to data compiled by EPFR Global.
Still, retail investors in China have been flocking back to the nation's stock markets, spurring about 700,000 new trading accounts openings each week this summer.
Sung Hung Kai's Pang said recent declines in Shanghai were driven by institutional funds pulling up stakes amid concerns the valuations had risen too quickly.
These major investors now believe further advances in share prices will be hard won in view of mounting policy risk, especially fears that Beijing will slow the huge growth in domestic credit, Pang said.
In particular, concern that loan growth is August will come in dramatically below market expectations of 400 billion yuan to 500 billion yuan has been cited as a catalyst behind Monday's massive sell-off.
"Incremental liquidity is seeing decelerating momentum as bank lending slows," wrote Citigroup Global Market strategist Lan Xue.
Ignoring earnings
Macquarie Securities said in a recent note that the pull-back in Chinese shares came in spite of improved corporate earnings for leading companies there.
Of the China stocks it tracks -- 96% of which have already reported first-half results -- earnings were down 19% on year, but that compares to a 56% on-year decline in the second half of 2008.
Dividend payouts have been relatively stingy, however, with only two of the 17 Hong Kong-listed Chinese companies tracked by Macquarie raising their payout out ratio. Eleven companies paid no dividend at all.
Still, Shanghai's market is likely Asia's most volatile, often rising as quickly as it falls. Wednesday morning's gains for the Shanghai Composite defied a regional drop, in which Japan's Nikkei 225 was 2.5% lower at midday, while South Korea's Kospi fell 0.4% and Australia's S&P/ASX was down 2.1%.
Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.