CSI 300 shows reselience and extreme volatility

High level of volatility while considered as bad for stock markets, Chinese traders are learning not only to live with it but push the index higher. These are no signs as of now that Chinese stock Dragon is standing down.

• Chinese benchmark stock index, SSE composite or CSI 300 has now moved closer to 5000 mark and giving 150% return in last 1 year. As of now index is up 144% in last 12 months. Last time in the period of 2005-2008 stocks rose by almost 500%. Volatility and margin debt continue to move higher along with.

The above chart from Bloomberg, shows how volatile the stock market has been on intraday basis.

• Today Chinese stock market was down about 5.4% in the first half, which was totally covered in the second half of the market and market moved to positive in closing, gaining almost 6.5%. This was massive move for intraday.

• 5 period average of realized volatility on Monthly basis now stands 11.4%, while weekly volatility is at 6.5%.

Warning sign is that Chinese stock market is not reflecting economic fundamental. China continues to slow down and may not hit even official GDP growth target of 7% this year, however stock market as of now is not sharing any of the economic concern.

Excessive speculative activity might finally lead to Japanese styled melt down of the stock market in China.