Yet another move by China’s stockmarket regulators to try and cool the bubbling bourses in Shanghai and Shenzhen, by increasing pressure on margin trading.
It’s the third time in the past couple of months that margin trading has been targeted. Apart from sparking an immediate sell off (especially a couple of Thursday’s ago when the markets plunged 6.5%), the moves by China’s Securities Regulatory Commission (CSRC) have fallen a bit flat as the markets have rebounded strongly.
The move came as figures were released late last week showing foreign investors have started withdrawning billions of dollars from the Chinese stockmarket.
The Commission has been making rather fitful attempts to lower the bubble like atmosphere in the Chinese markets where leverage is soaring.
Last week the markets in China ended the week up 2.9% – the best performance of any of the world’s major bourses (Australia’s was up 0.8%) and the US was up just 0.1%.
So the reaction today and over the rest of this week to the announcements of last Saturday from the CSRC will tell us a lot about the bubble-like nature of Chinese investor sentiment.
The Commission has “asked” securities companies not to help illegal lending to share purchases – a sign that it is certainly happening and is now a major concern
A draft rule was released by the CSRC on Friday night, confines the volume of margin trading conducted by each brokerages to four times their net capital and the Commission demanded that brokerages should make clients fully aware of the risks in this business.
The CSRC said it aimed to strengthen risk management and protect investors’ interests.
Any violation including insider dealing and activities that facilitate illegal trading is prohibited, the draft said.
China’s main market in Shanghai has seen its Composite Index surge over 60% so far in 2015 while margin trading also rose high to more than 2 trillion yuan from slightly above 1 trillion yuan at the end of 2014.(That’s getting close to $US400 billion).
News of the new directive came as figures were published in the US showing foreign investors are quitting China’s stockmarket. Figures out on Friday showed that billions of dollars flowed out of emerging market investment funds last week – $US9.3 billion, according to fund tracking group, EPFR. And of that amount, a massive $US7.1 billion were taken out of Chinese share investment funds. That was the biggest withdrawals since the GFC back in 2008 and signals a real turning in attitude to emerging markets and China (there are fears the rise in US interest rates will damage emerging economies).
That was stunning about face by foreign investors – in the three preceding weeks billions had flowed into $US4.6 billion had been pushed into the funds and the Chinese markets by foreigners. It is a stunning reversal of sentiment in such a short time frame.
