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"I'm Out Of The Game" - Traders Abandon China As 'National Team' Kills Equity Market

While all eyes have been focused on the collapse in US equity market volatility and its unending upward ramp in the face of 'event risk' large and small, the complacency has crossed the Pacific and crushed China's stock markets to a shadow of their former selves.

While we noted yesterday the seasonal tendency towards lower volatility around this time of year...

As The Wall Street Journal reports, the past 30 trading days, coinciding in part with the 19th National Congress of the Communist Party, have been the least volatile of any 30-day period since the Shanghai exchange reopened in the early 1990s, according to an analysis of FactSet data.

Many investors and traders say Beijing has taken on a more muscular role in markets, following a spectacular market boom and bust in 2015. Securities regulators have called many brokerages and funds over the past year, urging them to say publicly they were bullish about stocks and to refrain from selling shares, market participants say. Some traders cite the price-supporting effect of the “national team” of state investment funds, which they say steps in to buy shares when prices fall.

Since 2015, traders say Beijing has also used the “national team” - large state-backed companies including China Securities Finance Corp. and Central Huijin Asset Management - to help steady markets by buying shares when the market falls sharply and selling when it rises.

These state funds’ shareholdings hit a record high of 4.12 trillion yuan ($622 billion) in June, according to the most recent research by Sinolink Securities , or 7.2% of the total market cap of listed Chinese shares.

The developments have left China’s armies of retail investors - nicknamed “jiu cai,” after the leaves of Chinese chives that quickly regenerate - increasingly disillusioned.

While lower volatility can serve the government’s goal of projecting an image of stability, it can sharply reduce the opportunities for quick profits that many traders depend on.

Which has collapsed China's equity trading volumes...

As The Wall Street Journal continues...

“I’m out of the game,” said Gu Yuan, 34, an information-technology worker in Shanghai who sold almost 70% of a portfolio worth 600,000 yuan ($87,336) after the 2015 market slump and pared down some more this year. “It is more difficult to identify strong tech companies or convincing investment themes since the crash.”

This year’s subdued volatility doesn’t mean China’s markets have truly modernized,  said Michael Pettis, a finance professor at Peking University. He said that the quality of financial information still needs to improve.

“Real value investing requires corporate transparency, high quality of data and predictable government behavior,” said Mr. Pettis. “In China, none of these is easily available yet.”

The country still has 128 million individual investors, according to China Securities Depository and Clearing Corp, a clearing house. Individual investors directly owning stocks fell to 42% in February, the most recent available data, from 55% at the height of China’s bull market in 2015.