The chart below shows that systemic risk (co-movement of components) has declined in the Hong Kong China Enterprises Index, as measured by the cross-sectional standard deviation of daily returns to index components. This corresponds to declining implied volatility in the Chinese market (as measured by the CBOE’s index of volatility for options on the large-cap China ETF FXI).

The cause of declining volatility, in short, is identical to what we observe in the US market: idiosyncratic rather than systemic risk predominates.