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(Bloomberg) — China will stop lending some stocks to short sellers starting Monday to support a sluggish stock market, securities regulators said Sunday.
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Following the China Securities Regulatory Commission’s statement, the Shanghai Stock Exchange and Shenzhen Stock Exchange said in separate releases that strategic investors will not be able to lend out their shares during the agreed lock-up period.
Read more: Why China is trying to curb stock short selling: QuickTake
Willer Chen, senior analyst at Forsyth Barr Asia, said some estimates indicate that the size of these securities loans is negligible, adding: The impact may be limited.” Participants called for regulators to intervene in the matter. ”
Stock exchanges do not define strategic investors, but they typically refer to holders of restricted stock.
Mainland China broker stock index underperformed on Monday, falling more than 1%. The broader CSI 300 benchmark fell 0.2%.
The MSCI China Index has fallen 60% from its February 2021 peak as authorities take action following an alarming decline in Chinese stocks. In October last year, limits were placed on stock lending to executives and other key employees in strategic positions, among other restrictions. Since then, the balance of shares lent by strategic investors has fallen by 40%, CSRC announced on Sunday.
The MSCI China Index posted its first weekly gain this year last week, pushing its decline into 2024 by about 7.7% after the central bank announced plans for an impending reserve requirement cut and targeted economic stimulus. reduced to %.
Read more: China hints at targeted stimulus following sudden RRR cuts
Bloomberg earlier reported that state-run CITIC Securities had stopped lending stocks to retail investors and raised requirements for institutional clients following so-called window guidance from regulators.
However, sentiment remains weak, so short selling restrictions are unlikely to sustainably boost stock prices. In 2015, China restricted short selling to keep out day traders, whose same-day buying and selling was deemed to encourage “abnormal volatility.” However, the market continued to decline over the next few months.
The CSRC also vowed on Sunday to crack down on circumvention of lock-up regulations. Starting March 18, securities finance companies that borrow stock from institutional investors will have to wait a day before offering shares to brokerages, rather than having them available immediately, according to a statement on Sunday. It is said that it will not happen.
Read more: When stocks crash, China turns to ‘national team’: QuickTake
“China’s short-selling restrictions will cause a temporary rally in growth-oriented sectors such as new energy and electric vehicles, which have already been weakened by continued state support,” said Hebe Chen, an analyst at IG Markets. “We are supported and have a relatively positive outlook.” . “However, this measure appears to be more of a short-term remedy and lacks effective medicine to address the root causes contributing to the recent stock market crash.”
Ping An Securities announced that its A-share securities loan balance was 70.5 billion yuan ($9.8 billion) as of January 25, down 13% from the end of September 2023. The brokerage cited Wind data.
–With assistance from April Ma, Ken Wang, Charlotte Yang, Ishika Mookerjee, and Jiyeun Lee.
(Updates market movements on Monday)
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