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Investors focus on the stock market at a securities business hall in Fuyang, eastern China’s Anhui province, on December 29, 2023.
Photo | Future Publishing | Getty Images
China’s financial authorities have sought to support the country’s stock prices through a range of measures, including measures aimed at increasing market liquidity, warnings against fraud and relying on proverbs.
Onshore markets have already erased gains after the People’s Bank of China announced measures to boost liquidity last month, and there are doubts whether this familiar Beijing strategy will have a meaningful impact on the market.
On Tuesday, Central Huijin, a unit of giant sovereign wealth fund China Investment Corporation, said it had expanded its purchases of exchange-traded funds (ETFs) linked to domestic stocks to safeguard market stability.
This follows a flurry of statements by China’s securities regulators in recent days aimed at allaying investor concerns, including “guiding” institutional investors to increase investment and urging companies to step up share buybacks. This follows.
The China Securities Regulatory Commission also warned on Monday against “malicious” short selling and said it would tighten margin trading supervision following the volatile trading session. The company had promised on Sunday to protect investors’ interests before offsetting losses on Friday after domestic markets fell by up to 3%.
“A warning: don’t test the law or you’ll end up picking chestnuts in the fire,” the country’s securities regulator said on CNBC late Monday, in literal translations of two Chinese proverbs.
These moves are reminiscent of previous attempts to shore up market losses. Central Huijin is part of a “national team” of Chinese state-backed investors hired to shore up the stock market with strategically timed purchases.
Social stability is at the core of President Xi Jinping’s approach to “quality” financial development, adhering to “a combination of the rule of law and the rule of virtue.”
The CSI300 index of China’s most liquid blue-chip stocks listed in Shanghai and Shenzhen rose as much as 1.7% on Tuesday following the Central Huijin announcement, extending its recovery from a five-year low.
On Monday, the index closed up 0.7% in volatile trading that saw it drop as much as 2.1%. It is still down nearly 5% this year.
But the most volatile stocks were small- and mid-cap stocks favored by quantitative hedge funds among other professional investors.
The CSI1000 rose as much as 2.6% on Tuesday, rebounding from its all-time low hit on Monday. It’s still down more than 25% year-to-date, compared to the CSI300’s 4.9% decline.
The CSI 1000 index of small and midcap stocks is one of the most popular underlying benchmarks for derivatives, futures, and other structured products.
Bloomberg reported late Monday that China is tightening trading restrictions on domestic institutional investors and some offshore units.
In a speech last month, President Xi said that financial supervision must be “thorny” and sensitive, while making every effort to prevent and resolve financial risks, especially systemic risks, to foster a financial culture with Chinese characteristics. He said that.
Bloomberg also reported that Chinese regulators are expected to brief President Xi on Tuesday about the current state of financial markets.
The 50 basis point reduction in deposit reserve requirements announced by the People’s Bank of China on January 24 took effect on Monday. It plans to inject 1 trillion yuan ($139.8 billion) of long-term capital into the market ahead of the week-long Lunar New Year holiday.
He added, “Corruption must be resolutely punished in the process of risk management, and moral risks must be strictly prevented.”
—CNBC’s Evelyn Cheng contributed to this article.
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