Chinese Stocks Could Fall 9% Again, as Financial Engineering Reaches Tipping Point

china dragonFrom ZeroHedge: When Chinese authorities took over the day-to-day management and support of their collapsing stock market in August 2015, it was not just volume that died.

From over 110, short-term volatility in China’s major stock market – Shanghai Composite – has collapsed to single-digits this week. This is among the least volatile period in the index’s history, despite increased uncertainty around stimulus and economic transition.

China’s $6.2 trillion equity market was until recently best known for its violent price swings.

But, as Bloomberg reports, such wildness is past, with a gauge of volatility on the Shanghai Composite Index approaching the lowest level since 1992.

This complacency is happening despite a stock rebound that is faltering as improving economic data damp speculation for more stimulus, while the memory of last year’s boom-bust deters investors from betting on sustained gains.

We suspect this episode will not end well, as almost half of the Shanghai Composite Index’s members are flashing sell signals, up from 5 percent two weeks ago, moving average convergence-divergence data show.

The last time the proportion of bearish signs was this high in April, a 9 percent drop followed.

The iShares FTSE/Xinhua China 25 Index ETF (NYSE:FXI) fell $0.29 (-0.81%) to $35.50 per share in premarket trading Wednesday. The FXI, which is the most popular ETF for investors making bullish bets on Chinese equities, has risen 1.42% this year.

FXI-2016-07-27

This article brought to you courtesy of ZeroHedge.

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