Anx­ious Chi­nese in­vestors cut eq­ui­ties risk ahead of hol­i­day

Jerusalem Post - - BUSINESS & FINANCE - • By SA­MUEL SHEN and AN­DREW GAL­BRAITH

SHANG­HAI (Reuters) – Un­nerved by a slump in their stock mar­ket over the past two weeks, Chi­nese in­vestors are play­ing it safe as they head into week­long Lu­nar New Year hol­i­day by re­duc­ing their eq­uity hold­ings.

China’s stock mar­ket will be closed from Thurs­day through next Wed­nes­day for the hol­i­day. In prepa­ra­tion, money is flow­ing into less­risky as­sets such as bonds, while traders are also scoop­ing up de­riv­a­tives to hedge against mar­ket risks.

“Given cur­rent global mar­ket con­di­tions, hold­ing stocks through­out the hol­i­day would be re­ally dis­turb­ing,” said Wen Xun­neng, a Shang­hai-based in­vestor. “So why don’t you en­joy the hol­i­day trou­ble-free?”

Wen said he took ad­van­tage of this week’s mar­ket re­bound to empty his stock ac­count and put cash into safer as­sets such as fixed in­come and banks’ wealth-man­age­ment prod­ucts.

Chi­nese stock mar­kets were among the worst hit in the broad sell-off in global stock mar­kets this month, trig­gered by wor­ries about in­ter­est-rate hikes in de­vel­oped economies and ris­ing bond yields. The main Shang­hai stock in­dex lost 11% of its value over two weeks.

Even within fixed-in­come mar­kets, in­vestors ap­peared to be look­ing for safer ways to ride out the hol­i­day by seek­ing shorter-tenor, high-rated bonds and es­chew­ing lever­age.

Yun Xiong, a part­ner at Leiton Cap­i­tal in Shang­hai, said he has taken a de­fen­sive stance with about one-third of his fixed-in­come po­si­tion, mov­ing into short-du­ra­tion Chi­nese gov­ern­ment bonds. “We don’t like un­cer­tainty,” he said. Wu Jie, a Shang­hai-based hedge-fund man­ager, cut his stock hold­ings down to a third to avoid be­ing caught by any neg­a­tive de­vel­op­ments in global mar­kets while China is on va­ca­tion.

The mar­ket rout has chal­lenged the con­vic­tion many Chi­nese in­vestors held in buy­ing and hold­ing blue-chip stocks. That strat­egy had paid off in 2017 as in­dex heavy­weights ral­lied, driven in part by grow­ing in­ter­est from for­eign in­vestors.

The blue-chip CSI300 in­dex reg­is­tered its big­gest weekly loss in more than two years last week with a 10% tum­ble, wip­ing out gains ac­cu­mu­lated dur­ing the pre­vi­ous five months. The SSE50, dubbed China’s Nifty Fifty In­dex, slumped 11% last week.

Traders said do­mes­tic con­cerns over mar­gin calls and Bei­jing’s stepped-up cam­paign to re­duce risks in the fi­nan­cial sys­tem had ex­ac­er­bated the de­cline in Chi­nese stocks.

They also agreed that the era of low volatil­ity for China’s main stock in­dexes is over, thus spurring a slow exit from eq­ui­ties. The iVX in­dex, dubbed China’s fear gauge, surged to 33.06 last Fri­day, the high­est level in a year.

The Chi­naAMC 50 ETF, Shang­hai’s big­gest ex­change-traded fund and a ve­hi­cle to bet on Chi­nese big-cap firms, saw its size shrink by 6.8 bil­lion yuan ($1.07b.) over the past week alone.

In­vestors who are loath to scale back their po­si­tions ahead of the hol­i­day are hedg­ing their port­fo­lios via in­dex fu­tures and op­tions.

The CSI300 in­dex fu­tures, which can be used by traders to short-sell the blue-chip in­dex, saw its trad­ing vol­ume surge 50% last week.

(Aly Song/Reuters)

IN­VESTORS LOOK at com­puter screens show­ing stock in­for­ma­tion at a bro­ker­age house in Shang­hai last week.

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