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Singapore - Chinese stock-index futures plunged by the daily limit before snapping back in less than a minute, the second sudden swing to rattle traders this month.
Contracts on the CSI 300 Index dropped as much as 10%, recovering almost all of the losses in the same minute. More than 1 500 June contracts changed hands on the China Financial Futures Exchange, the highest volume of the day, according to data compiled by Bloomberg.
The volatility had little impact on the underlying CSI 300, which rose 2.6% at the midday break.
The swing follows a similarly unexplained tumble in Hang Seng China Enterprises Index futures in Hong Kong on May 16, a move that heightened anxiety among investors facing slower Chinese economic growth and a weakening yuan.
Volume in China’s stock-index futures market, which was the world’s most active as recently as July, has all but dried up after authorities clamped down on what they deemed excessive speculation during the nation’s $5trn equity crash last summer.
"Liquidity in the market is really thin at the moment," Fang Shisheng, Shanghai-based vice general manager at Orient Securities Future, said by phone.
"So the market will very likely see big swings if a big order comes in. The order looks like it’s from a hedger."
For more on this month’s sudden drop in Hong Kong futures, click here.
An official at the China Financial Futures Exchange in Shanghai said he couldn’t comment and refused to give his name.
Chinese policy makers targeted the futures market last summer because selling the contracts is one of the easiest ways for investors to make large wagers against stocks.
Volumes shrank by more than 90% from their peak after officials raised margin requirements, tightened position limits and started a police probe into bearish wagers.
International traders have turned elsewhere to express their negative views. Short interest in one of the largest Hong Kong exchange-traded funds tracking domestic Chinese stocks has surged fivefold this month to its highest level in a year, according to data compiled by Markit and Bloomberg.
The integrity of Chinese markets has come under greater scrutiny in recent months as MSCI considers adding the nation’s domestic shares to its international indexes.
Recent measures to curb trading halts and clarify beneficial ownership rules have improved the country’s odds of inclusion to 70%, Goldman Sachs Group analysts wrote in a report on Tuesday. MSCI will announce its decision next month.
The CSI 300 has dropped 16% this year, versus a 2.2% gain in the MSCI Emerging Markets Index.
