Here’s a post about my last few weeks experience trading on the Shanghai exchange (I’m in Seoul using IB as a broker)…this stuff is super interesting but it seems like nobody else knows about it yet.
Opening – it opens at 9:15 with a pre-market call auction. At 9:25 prices flash up but you can’t trade, so you’ve got 5 minutes to scheme. At 9:30 it’s go time with the continuous market. I like the way it opens, it’s fun…but it’s extremely volatile during the first few minutes…actually it’s extremely volatile all day! Volume/volatility – The exchange is unlike anything I’ve seen, a total mad house. The screen is flashing price changes so fast I feel like I’m going to have a seizure. A [billion Chinese x percent that have brokerage accounts] all speed trading at once. When I switch to NYSE, TSE and LSE it’s like a snails pace, very controlled. Even the craziness in the US with the FOMC meeting the other day, that’s like 40% of the REGULAR day to day pace at the SH exchange. You need massive nuts to hold thru this volatility, no joke…requires you to adjust your “normal” to SH standards. Mispricing – There are *massive* price inaccuracies to exploit. In fact it might be more true to say that there are no price accuracies. Example: I bought a boring utility stock a couple weeks ago, I check it an hour later and it’s up 8%, no news, just up…and then it closes down like -3%. Today it jumped 10% (the limit), again no news. This happens every single day: massive big caps lighting up +/- 6-10% all over the screen, on zero news, then drifting back over the week as people lose interest. Why? Because the market is 80% unsophisticated retail investors, the opposite of the institutional-dominated US market. These people are just following patterns in the flashing lights, they have no idea what they are buying and could care less about fundamentals. They just see one go green and they pile in, then next week they sell it off. One day they sell off all their financials in favor of industrials, tomorrow they do the opposite, their herd patterns are very obvious. and the brokers get rich. The entire index often moves +2%, -1%, and back to +2% over the course of the short four hour trading day! If you know how to make money off volatility, you can get rich here. But… Foreigner restrictions – The only problem is foreigners are not allowed to short or to day trade yet, which makes it somewhat difficult to know how to exploit the craziness. But I’ve got an idea that I’m going to start testing next week. By the way, one of reason for opening it to foreigners is the hope that they will bring some discipline to the marketplace. However without better tools it’s hard to know how to do that, and we only represent 3% of the players. Damn, am I the only one in on this deal? If any of you dudes use Interactive Brokers you can get free quotes on the Shanghai exchange thru the SH/HK link by checking that box on the Asian data screen, it’s very simple. I pay $20 for real time, but the free 5 second delay quotes are sufficient. Then create a screen of the big names in the CSI-300 using TWS, SH tickers are formatted 600XXX, IB has a list on their site. It would be cool to communicate with another foreigner, not having anyone to bounce ideas off sucks. I know time zones might be an issue, but I think it’s educational to look and see what’s happening over there…this exchange is going to control an increasingly massive piece of global market cap going forward, and it’s going to be included in global indexes, so it can’t be ignored. It was the best performing region this year (CSI-300 up 50% YTD), and there’s a fair chance it will do the same next year. Goldman CFA geeks on the importance of this market opening up… http://www.goldmansachs.com/our-thinking/trends-in-our-business/stock-connect/report.pdf