- According to a report in the Financial Times, the Chinese government is restricting Chinese retail investors’ access to foreign securities.
- The domestic market has suffered massive capital outflows as domestic traders fled to offshore securities.
- About one-third of funds that invest in foreign stocks and bonds have restricted or suspended sales.
Beijing authorities have banned the extent to which domestic traders can access offshore markets in a bid to inject some life into China’s fast-growing stocks.
According to the Financial Times, some securities firms have received informal instructions from the Shanghai Stock Exchange, with about 30% of funds offering investments in foreign securities to suspend or restrict sales to retail investors. ing.
Participants include companies such as China Asset Management and Vocera Asset Management. Bloomberg also reported that the former has suspended subscriptions to two mutual funds that track the U.S. Nasdaq and S&P 500.
The curbs come as Chinese investors scramble to participate in a frenzy in U.S. stocks that has seen major indexes hit record highs in recent days. By contrast, Chinese markets are trading at five-year lows, with the benchmark CSI300 index already down 4% since the start of the year.
The decline reflects investors’ shaky confidence in China’s ability to navigate the economy as the government grapples with slowing growth, a real estate crisis, high unemployment and disinflation.
The outflow was further fueled by the country’s offshore retail investment structure, where traders can only invest through China’s Qualified Domestic Institutional Investor Scheme.
This imposes quotas on how much foreign stocks and bonds securities companies can offer, creating a sense of scarcity and spurring competition for non-Chinese securities, the FT reported. Overall, Chinese investors have shown an increasing preference for overseas markets over the past year, with a record 49 such funds launched in 2023.
Apart from US-focused investments, Chinese retail traders have also shown strong appetite for exposure to Japan’s Nikkei Stock Average, and India-focused funds have also increased.
Apart from soliciting funds to curb offshore investment, authorities are considering a $280 billion market support plan to raise funds from state-owned enterprises’ offshore accounts.
China’s economy is also facing a $140 billion increase in liquidity as authorities plan to announce cuts to banks’ cash requirements.