(Times of Update) — Stock trading in China fell to its lowest level in more than four years as a rally in local bonds reached its peak in a slumping economy.
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Turnover on the Shanghai and Shenzhen stock exchanges fell to a combined 496 billion yuan ($69.1 billion) on Monday, the lowest level since May 2020. It was also the lowest level relative to China’s total market capitalization since late 2019.
With the world’s second-largest stock market on track for its fourth straight year of losses, an unprecedented real estate slump has further limited investors’ options, sparking a surge in demand for government bonds that has alarmed regulators. While a sharp drop in trading volume often signals that pessimism is nearing a bottom, several such episodes in China in recent years have preceded panic-driven selling that pushed the market to new lows.
“The turnover shows that the market is in the grip of pessimism,” said Shao Qifeng, chief investment officer at Ying An Asset Management Co., noting low stock yields relative to bonds as the main reason. “But I think the situation is not as bad as people currently think and it’s a no-brainer to add positions if possible at this stage.”
Shao said he remains optimistic about the earnings outlook for Chinese companies and the country’s long-term growth prospects.
China’s benchmark CSI 300 index has fallen more than 3% this year, making it the world’s worst-performing stock index. Down 0.2% at midday on Tuesday, it is close to a 10% decline from its May high.
Meanwhile, trading volume in Hong Kong, where stocks have fared better than those in mainland China this year, has also contracted in recent days. It fell to HK$70.3 billion ($9 billion) on Monday, its lowest level since February.
(Updates with investor quote and index performance details)
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