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Role of index futures in market drop in China

05-18-2010 09:42 BJT

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Since the launch of stock index futures, China's stock market has tumbled. Some believe the new board doesn't help to stabilise assets. But as we find out, other experts say the new board is not the cause of the latest drop.

On April 19th, the second day after the CSI 300 opened, China's stock markets plunged with big falls in both Shanghai and Shenzhen. The decline didn't stop there. The Shanghai Composite Index fell to 2,604 points on May 12th, very close to its 12-month record low.

Zhou Lei, Assistant GM, Galaxy Futures, said, "The tumble of the stock market is not necessarily related to the launch of stock index futures. The fall is mainly due to the government's macro control policies, including real estate, and some industrial adjustments. Stock index futures are just financial tools. The impact on the securities market is weak."

But some still think the market decline is due to the the launch of stock index futures, which diverted a large amount of capital.

Zhou said, "Stock index futures have taken less than 10 billion yuan in capital, so far. For the whole stock market, which accumulates 15 trillion yuan in capital, this amount is trivial."

No correlation between index futures and market performance has been proven, but the two areas seem to move similarly when responding to economic news. In the case of stock index futures, in fact, the changes often happen even faster.

Editor:Zhang Jingya |Source:

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