In the face of the continuous decline in the Chinese stock market, the China Securities Regulatory Commission (CSRC) has taken proactive measures to stabilize the market. Firstly, it has temporarily suspended the lending of restricted shares, thereby effectively limiting short-selling operations. Secondly, it has adjusted the declaration period for margin trading and securities lending from “real-time availability” to “next-day availability,” further restricting the efficiency of securities lending.
Background:
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Contents:
China officially restricts short-selling
China’s “market stabilization” signal is clear
Court orders liquidation of China Evergrande
In recent times, both the Chinese and Hong Kong stock markets have experienced continuous declines. The Shanghai Composite Index, one of the three major indexes in the A-share market, recently fell to a new low of 2,735.37 points, the lowest since April 2020. The CSI 300 Index also fell by 11% in 2023, marking the third consecutive year of decline. The Hang Seng Index in Hong Kong has already fallen by 10% this year, becoming the worst-performing major index in Asia.
Against this backdrop, it has been reported that the Chinese government is implementing various measures to protect the market, including the establishment of a 2 trillion RMB stock market stabilization fund. In order to reduce volatility, the CSRC officially announced yesterday that the lending of restricted shares will be completely suspended from today (29th). This means that investors cannot lend their shares for short-selling during the agreed lock-up period. The CSRC stated that this move aims to create a fairer market order, limiting institutions from using information and tools to their advantage and allowing various types of investors more time to digest market information.
Furthermore, the second adjustment in this system change is that, starting from March 18th, the declaration period for margin trading and securities lending has been changed from “real-time availability” to “next-day availability.” In the past, Chinese investors could “immediately” send the securities lent through the declaration to their brokers for short-selling. The new arrangement, which allows securities to be used for margin trading only on the next day, imposes limitations on the efficiency of margin trading.
These measures highlight the Chinese government’s efforts to stabilize the stock market and strengthen the regulation of short-selling transactions during the recent market downturn. The CSRC stated in its announcement that the optimization of the margin trading mechanism primarily reflects the following regulatory intentions.
The CSRC’s weekend release of these measures has had a positive impact on the A-share market. Although the industry believes that this move has limited overall impact on the market, it demonstrates a clear determination to stabilize the market. A chief analyst from a brokerage firm stated to First Financial Daily that he expects this to be just the beginning of immediate policy releases, and there will be more substantial measures in the future.
Li Shiyu, Chairman of Guangdong Xiaoyu Investment, believes that short-selling has a greater impact on investors in a bear market, and the temporary suspension of strategic stock lending reflects attention to the market and an investor-oriented attitude. This may release pressure on the prices of newly listed stocks and bring new profit opportunities to the market, especially before the Spring Festival.
However, experts quoted by the Financial Times expressed doubts about the effectiveness of the ban. Gary Ng, Senior Economist at Natixis, a French foreign trade bank, believes that overall, China has shown an attitude of policy support, and the market is now focusing on further substantial support measures to achieve economic rebound.
Another piece of bad news for the Chinese stock market is that the Hong Kong court has officially issued a liquidation order to debt-ridden Evergrande Group. Analysts point out that Evergrande’s liquidation will pose a major setback to China’s economic recovery and further shake its financial system. After the news was announced, Evergrande’s stock fell by more than 20%, and its affiliated companies, including Hengqin (0708), saw an 18% decline before the trading halt, while Evergrande Property (6666) fell by 2.5%.
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