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Realized volatility in the Shanghai Shenzhen 300 equity market index remains at historically low levels despite the bear market in equity prices (the chart below shows a GARCH estimate of volatility for the 1st and 2nd Principal Components of sectoral returns to the SHSZ300 Index).

The price movement has been negative, but not risky, by comparison to 2015, when China was in a growth recession and had to allow the RMB to depreciate in order to ease monetary policy.

The 1st Principal Component (to which all sectors show roughly equal exposure) explains 75% of variation in the index. The 2nd Principal Component is proxy for financials.

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