- China has curbed short selling and quant trading activities to support its flailing stock markets.
- The moves could hit investor appetite as it calls market transparency and price discovery into question.
- Analysts have said China needs to boost investor confidence by focusing on economic reforms.
Beijing is now trying to support the flailing Chinese stock markets by pulling a familiar move — cracking down on private sector activities.
The measures, which include curbs on short-selling and restraining quant trading funds, are aimed at propping up China and Hong Kong’s stock markets, which have collectively lost trillions of dollars since their peaks in 2021.
While such moves may help stem immediate market losses, they hurt China in the long run.
Remember — China’s recent private sector enterprise crackdown wiped out over a trillion dollars from its tech sector alone and spooked entrepreneurs. Despite efforts to woo investors back into the industry again, stock prices are still far from their heydays.
This time round, Beijing’s limits on short selling and quant transactions — just some of many in China’s recent flurry of measures to shore up its markets — are fueling frustration and angst among traders, as Bloomberg reported on Monday. They’re also likely to dent investor appetite.
Beijing has “basically sent a signal that market transparency and the search for it is not allowed as much.” George Boubouras, head of research at Melbourne-based K2 Asset Management, told Bloomberg.
China isn’t the first to curb stock market activities — the US also cracked down on short-selling during the 2008 financial crisis. But Beijing’s already heavy-handed oversight over much of the country’s economy and society isn’t lost on investors who are already jittery about putting their money in China.
China’s securities regulator said on Thursday it wasn’t trying to interfere with trading activities, but will crackdown on “illegal activities” that disrupt market order.
Many economists believe China needs to boost investor confidence and double down on economic reforms and fundamental challenges as the country tries to engineer a convincing post-pandemic recovery.
“Chinese government moves to restore private-sector confidence and boost the economy still lack a broad reform framework,” Eswar Prasad, a professor at Cornell University and a former International Monetary Fund official in charge of China, told Nikkei this month.
Hong Kong’s Hang Seng Index was 0.4% lower at 1:22 p.m. local time. It’s down 2.4% so far this year and 16.6% lower over the past 12 months.
The blue-chip CSI300 was also 0.4% lower. It’s down 1.2% this year to date and 14% lower over the past 12 months.
