Investment

Stock volatility falls to four year low

By Allen Wan (China Daily)
Updated: 2010-08-10 14:13

SHANGHAI - Chinese stocks volatility fell to the lowest level in almost four years, signaling investors' "comfort" with the outlook for slowing economic growth, according to AlphaShares Inc.

"The plunge in volatility is attributable to both the summer slumber and the turn in China policy," Jonathan Masse, who helps oversee about $480 million in Chinese stocks at Walnut Creek, California-based AlphaShares, said in e-mailed comments. "When Chinese Premier Wen Jiabao pledged the government would ensure steady and relatively fast growth and vowed to make 'policy stability' the main theme for the second half of 2010, that really eased investor worries."

An investor reacts to share price movements at a brokerage in Haikou, Hainan province. Shi Yan / For China Daily

The AlphaShares Chinese Volatility Index, a gauge of investor fear of Chinese stocks, fell to 20.17 on Aug 5, the lowest since Dec 15, 2006. The index tracks the implied volatility of options on the Hang Seng Index, the benchmark for Hong Kong stocks, and the FTSE/Xinhua China 25 Index, or FXI, which tracks the nation's 25 largest companies by market value.

The Shanghai Composite Index has rebounded 13 percent from this year's low on July 5 as investors speculated the government will ease property curbs and allow more lending to counter a slowdown in economic growth. The benchmark measure is still down 19 percent in 2010, the world's third-worst performer, after the government increased down payment requirements on home sales and ordered banks to set aside more deposits as reserves.

Premier Wen's speech in Beijing on July 16 signaled a "subtle shift" in government policies and that no additional tightening measures will be introduced, UBS AG economist Tao Wang said in a July 27 report.

China's economic expansion dipped to 10.3 percent the second quarter from 11.9 percent in the first three months of the year.

Industrial production probably climbed 13.4 percent from a year earlier in July after a 13.7 percent gain a month earlier, as the government shuttered energy-intensive factories, according to the median estimate in a Bloomberg News survey of 29 economists. The data are scheduled for release in Beijing on Aug 11.

July trade data, due tomorrow, may show that exports rose 35 percent from a year earlier, down from 43.9 percent in June, according to the survey of analysts. Import growth may have slowed for a fourth month to 30 percent, leaving a trade surplus of $19.6 billion.

The "markets have gone from pricing in double-dip recession fears earlier in the summer to the current environment that is more comfortable with accepting slower and steadier economic growth", Masse said.

FXI options averaged 1.86 million contracts in both June and July, compared with 3.09 million in the previous two months, Masse said.

Implied volatility is a measure of expected price swings and the key gauge of options prices. Options are derivatives that give the right though not the obligation to buy or sell a security at a set price and date. Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will increase or decrease.

Bloomberg News