China Chases Ghosts as Markets Collapse
The China Daily newspaper said on Friday that the CSRC was probing investors who used stock index futures to “short” the market – or bet on prices falling ignoring the possibility that China is overvalued at the moment.
Chinese markets, which had risen as much as 110 percent from November to a peak in June, have tumbled more than 20 percent since June 12 in jaw-dropping volatility as money surges in and out of the market.
Shanghai’s benchmark share index plunged below 4,000 points for the first time since April on Thursday.
“We discuss China in detail at every strategy meeting and we continue to consider it one of several risks we need to keep an eye on,” Dan Ivascyn, Group Chief Investment Of ..
Sources with direct knowledge told Reuters that the China Financial Futures Exchange (CFFEX) had suspended 19 accounts from short-selling for a month.
After market close, CFFEX said it was introducing transaction fees on futures contracts on three indexes and strengthening the market to combat short-selling activities.
Guotai Junan Securities (601211.SS), one of China’s top brokerages, said it would suspend lending securities to clients for short-selling and step up monitoring of abnormal trading behavior by short-sellers.
Much of the selling of Chinese stocks has been driven by “margin calls”, when a brokerage that has extended credit to an investor to buy stocks demands more cash or collateral because prices have fallen.
If those margin calls continue, it also could affect other markets as investors need to raise cash.
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“Some funds have closed their copper positions to send funds back to China, in order to meet their margin payments on stock indexes,” said one metals broker in Hong Kong.
Herald van der Linde, Asia equity strategist at HSBC, said there were signs that some money being pulled out of stocks was going into other assets, with a pick-up in physical property transactions.
“It could go to Hong Kong, it could go to property, it could go to cash,” he said. “But if they have to repay debt, it’s basically deleveraging, as well.”
Beijing has been struggling since the weekend to find a policy formula to restore confidence in its stock markets.
So far, rapid-fire steps including easing monetary policy, encouraging more pension funds to invest in stocks and cutting transaction costs have failed to stem the slump.
The CSRC has relaxed rules on using borrowed money to speculate on stocks, letting brokerages set their own tolerance level on margin calls and allowing the rollover of margin lending contracts.
On Friday, the regulator also said it would step up its monitoring of markets to protect investors against the mis-selling of investment products.
China releases second-quarter gross domestic product data on July 15, and many economists expect growth to dip below 7 percent, which would be the weakest performance since the global financial crisis.
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