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The Shanghai Stock Exchange sign in the Lujiazui financial district in Pudong, Shanghai, China, Monday, January 29, 2024.
Bloomberg | Bloomberg | Getty Images
Short positions in China’s stock market shrank by a third in February, the lowest in more than three years, reflecting regulators’ measures to curb speculation and boost investor confidence.
China’s blue-chip CSI300 index .CSI300 has rebounded nearly 14% from last month’s five-year low, although economic growth still appears fragile as selling pressure eases on the back of government stabilization efforts.
The balance of stocks borrowed by investors for short sales fell to 43.5 billion yuan ($6.04 billion) at the end of February, two-thirds of the level at the end of January, according to data from the China Securities Finance Corporation. This is the lowest level since July 2020. , a state-owned company that provides margin loan services in the market.
However, this data does not include other short positions via derivatives or stock futures.
As part of a series of measures to boost the market, China’s securities regulator last month stopped securities firms from borrowing stocks to finance short sellers. Additionally, investors were prohibited from shorting stocks they had purchased on the same day.
The China Securities Regulatory Commission (CSRC) said its policy aims to create a level playing field in the market where retail investors account for the majority of trading.
Securities companies such as CITIC Securities, GF Securities and China Securities announced that they would restrict short selling activities in line with the recommendations of regulators.
Wei Mingsan, general manager of Zhejiang Deepwin Asset Management Company, said the restriction made it impossible for fund managers to implement “T+0”, or intraday trading strategies.
Fund managers have condemned the move.
Yuan Yuwei, a hedge fund manager at Water Wisdom Asset Management, said the regulation will lead to more trading in so-called long-short equity strategies, where funds buy high-performing stocks while shorting low-performing ones. He said it was becoming difficult.
“Both long and short are suitable for value investing. Without short selling, the market could be vulnerable to further volatility,” Yuan said, adding that regulators are targeting market manipulators, not short sellers. argued that it should be pursued.
The debate shows that Chinese regulators are walking a tightrope between efficiency and fairness as they ramp up scrutiny of short selling, leveraged trading and high-frequency trading.
“This regulatory vigilance makes sense from the perspective of maintaining market stability,” said Ker Sheng Li, Asia-Pacific co-head of lobbying group AIMA, which represents fund managers in more than 60 countries. “There is,” he said.
“Still, it is important to strike a delicate balance between regulation and free markets.”
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