The Chinese stock market experienced a 4.4% correction last week, the biggest this year. The Shanghai Composite Index dropped 230.07 points to 4984.16 on Thursday amid light trading. While the stock market may look bearish, China’s futures market is gaining momentum.

Trading value on the Shanghai Stock Exchange moved around $50 billion Yuan per day at the end of last week. The futures market trading value stood at 328 billion Yuan per day, six times more. During the past twelve months, the futures market trading value increased 139%, while the stock market trading dropped since peaking in June.

Chinese Futures and Stock Market Trading Value (Billion Yuan)

(Source: China Securities Regulatory Commission. Copy right reserved by Red Capitalists)

This may reflect a shift in strategy among investors. Many consider the stock market overvalued and expect further corrections. With few alternatives, the futures market appeals to investors because China’s strong demand for metals, rubber and soybeans is expected to continue.

The futures market is off limits to foreign investors and participants. Only foreign companies who have a legal status in China could trade in the futures market. This makes it more isolated. Foreign investors could invest in China’s stock market through certain programs.

There are three commodity exchanges in China in Shanghai, Dalian and Zhenzhou. They trade in aluminum, rubber, fuel oil and soybeans, among others.