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Chinese authorities have told some institutional investors in recent days not to sell stocks, as the company faces fresh pressure from regulators to stabilize its stock prices after plummeting in the first weeks of the new year. .
Since October, market regulators have issued private instructions, known as “window inducements,” to some investors that prohibit them from selling stocks on certain days.
Such selling restrictions caused the benchmark CSI 300 index to rebound about 3% in the final week of 2023, traders said. But as restrictions on some small mutual funds and brokers were eased in the new year, the index completely reversed those gains, falling more than 4% this month.
The Chinese government is now reimposing these restrictions on securities firms, China’s large institutional investors that act as brokers and have their own trading arms, according to traders and investment managers at three different financial institutions. .
Investors and traders also said the reversal by regulators, the latest in a series of U-turns, was distorting markets and undermining widespread confidence.
“This kind of window inducement creates delay selling pressure, but it cannot be postponed forever,” said one Shanghai-based brokerage firm whose trading desk was recently instructed to avoid another round of short selling. the director said. “In the end, market sentiment will determine performance.”
Financial regulators are under pressure from leaders to halt a long slide in the CSI 300 index, which has fallen 19% over the past year. Public measures to reinvigorate demand, such as lowering transaction fees and buying up bank stocks through central government investment funds, have failed to restore investor confidence.
Instead, the China Securities Regulatory Commission and the Shanghai and Shenzhen stock exchanges switched to providing private window guidance. CSRC, Shanghai Stock Exchange and Shenzhen Stock Exchange did not respond to requests for comment.
Traders and fund managers said regulators were forced in early January to allow net sales of small mutual funds in the face of increased redemptions by customers worried about further price declines.
The sales spooked retail investors in China and sparked a fresh selloff, traders and investment managers said. As a result, some of Japan’s largest investment trusts, which still have strict restrictions on net selling, suffered large losses.
Traders said the latest intervention differs from the strategy typically deployed by the Chinese government. The government has not yet dispatched state funds and financial institutions, the so-called “national team,” to buy up stocks on a large scale, as it did in previous defeats.
For mutual fund companies, the strictness of limits on net sales is based on a particular fund’s assets under management, with larger funds facing stricter enforcement.
“There’s not a lot of track record of this type of equity intervention actually working,” said Mohamed Apabay, head of Asia trading strategy at Citigroup. “Certainly, there is potential to ease some of the selling pressure, but the Chinese market will depend more on what’s happening with the fundamentals and attitudes towards private companies than anything else.”
Allowing some smaller funds to sell more shares has helped them meet demand for redemptions, but fund managers say these exceptions will be granted by regulators on a case-by-case basis. He said no basis was provided for rejecting one request or accepting another. .
Xia Chun, chief economist at Forthright Financial Holdings in Hong Kong, said net sales limits are unlikely to boost investor sentiment in China.
“Individual investors will not welcome this kind of window guidance under any circumstances, because it just isn’t working,” he said.