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[SHANGHAI] It's been almost 12 months since China's equity market embarked on a precipitous decline that would erase US$5 trillion of value, and the nation's stocks have rarely been this subdued.
For the past two weeks, the Shanghai Composite Index hasn't strayed more than 51 points from the 2,800 level. Volatility on the gauge is the lowest since December 2014, while turnover has crumbled to levels more than 80 per cent below last year's peak.
Margin debt, which fueled 2015's bull market, has dropped by more than 1.4 trillion yuan (S$294.5 billion) on China's equity exchanges as investor interest dwindled.
The muted trading masks convulsions in the nation's financial markets as an economic slowdown deepens and the authorities step up measures to prevent capital outflows. Rising corporate defaults are prompting concern over the size of China's debt burden, commodity prices are plunging as another speculative mania ends, while the yuan is heading for its steepest losses this year.
While state support for the stock market is limiting declines in the benchmark gauge, RS Investment Management says expensive valuations mean there's little incentive to chase gains.
"You still have an artificially high P/E multiple and that needs to come down as the A-share market adjusts to fundamentals," said Tony Chu, a Hong Kong-based money manager at RS Investment Management, which oversees about US$17 billion.
"Pain is likely going to continue."
Since May 9, the Shanghai Composite has closed between 2,850.86 and 2,806.91, with the average daily move being 0.4 per cent. That compares with January, when swings of more than 3 per cent were common, or the 5 per cent moves that were a regular feature of July's turmoil.
A gauge of 30-day volatility has fallen to 17, after peaking at 65 last year, and below the level of Japan's Topix index.
The drop in turnover has been even more dramatic. The value of shares traded on the Shanghai exchange fell to 118 billion yuan on Wednesday, the lowest level for a full day since October 2014, and down from a record 1.3 trillion yuan in June.
"It's rather unusual for A shares to be rangebound," said Daniel So, a strategist at CMB International Securities Ltd. in Hong Kong.
"Usually it's like a pendulum."
The Shanghai Composite peaked on June 12 after a logic-defying rally that added US$6.7 trillion to the value of Chinese stocks in just 12 months, or more than the size of Japan's entire equity market. While the index has since tumbled 46 per cent, its price-to-earnings ratio is still higher than a gauge of emerging market peers.
Money that once surged into the stock market found other outlets. Daily turnover on the nation's commodities futures markets jumped by the equivalent of US$183 billion in just two months before prices of iron ore to cotton started to reverse in May.
Signs of economic stress are growing. At least 10 issuers have reneged on onshore debt obligations this year, spurring renewed concerns about corporate defaults. The central bank on Wednesday weakened its yuan fixing to the lowest in five years as a stronger dollar threatened to end the stability that's prevailed in the country's currency market for much of the year.
The Shanghai Composite has flatlined since May 9, when the gauge tumbled 2.8 per cent after a front-page article in the People's Daily about the nation's high levels of debt damped hopes for more monetary easing.
Intraday declines below 2,800 have been erased by the close of trading, leading to speculation government funds were shoring up the market at that level before MSCI Inc's decision next month on whether to include the country's shares in benchmark indexes.
"It's going to be in this range for a bit longer," said Pauline Dan, head of Greater China equities at Pictet Asset Management Ltd in Hong Kong.
"There is really no catalyst for it to go up."