Chinese stocks rise, so does volatility

In an impressive rally Chinese stock index has moved to new heights today, as bulls seems untamable. Weaker data has so far helped little to dissuade Chinese bulls.

Chinese mainland stock index CSI 300, post another 2% rally today, closing above 4000 level at 4034.

Key highlights from recent rally -

• A-H premium - Recent rally is being driven mainly from mainland, which led to rise in A-h premium, price differential between same share listed in Hong Kong and China. At one point some stock were trading 1/3^rd the price of mainland in Hong Kong. However premium has dropped reasonably in recent trade.
  
  
• Retail crowd - Chinese stock index rally led to frenzy of new account opening in China that reached all-time record. In March more than new accounts opened in mainland as retail traders jumped in the trade.
  
  
• Everybody analyst - Recent evidence suggests that in China, Hot stock tips can be obtained from local grocer and barbershop. Evidence suggests composition of new investors include 80% people that do not possess a college level degree, whereas 30% are max educated up to elementary school.

• Margin debt - Margin buying has gone up considerably, which now stands above 1 trillion and constitutes about 20% of the market holding. Domestic firms are jumping in whereas foreign buyers continue to withdraw money.

However, as a warning sign volatility is going up.

• CBOE china ETF volatility index is now close to levels last seen in October 2014. 5 day average of realized daily volatility in CSI300 now stands more than 2%.

Chinese stock market might risk, Japanese style blow up in the 90s that led the country to deep deflation.