Volatility is back in Chinese stock market

Memories of June to August are coming back, when Chinese market used to drop sharply in the afternoon session, followed by subsequent recovery. Today in the afternoon session, Chinese benchmark stock index, Shanghai Composite was down -3% but finally closed in green, up 0.26% for the day.

Volatility has shot up and now close to levels last seen during August market turmoil. On Friday, Chinese stock market was down -5.5%. This year, for a long period of time, China's stock market has been the most volatile in the world. Recent turmoil and increased volatility might also be pointing that as FED decision closes in, calm surrounding Chinese stock market, since September might be over.

As of now, it is quite unclear, what might have triggered such a move. While there was sharp drop in industrial profits and investigations on brokers to blame for Friday's move, there has been nothing over the weekend that justifies today's move.

While today's selloffs could have been Friday's continuation, real question is who the buyers are -

• Foreign funds, expecting better growth ahead or rise in stocks as Yuan gets included in SDR basket?
• Domestic retail looking for dips buying, flocking again into stocks?
• Or, is it the National Team, trying to support market?

It can't be pin pointed for sure, however it can be said with some certainty, if today's low at 3320 gets broken, expect further sharp sell offs.

Shanghai composite closed at 3445.