China is making moves to win back investors who pulled out last year. The stock market in China declined by about 13% in 2023, and the real estate sector has continued to struggle into the new year amid several crises, including a persistent drop in foreign demand and a fragile domestic recovery. The initial step to steady the economy came from the People’s Bank of China, which kept the benchmark lending rate at 3.45% for the sixth straight month.
Now Beijing is finalizing a broad set of measures, including a 255 billion euro package aimed at stabilizing capital markets before the upcoming holiday season. The Chinese New Year is traditionally a period of heightened market volatility. Simultaneously, Chinese securities regulators reportedly urged hedge funds to curb short selling in stock futures markets, according to Reuters-sourced information.
Shanghai’s CSI 300 index slid to levels not seen in nearly five years this week, prompting government actions to shore up market stability.
No official comment from regulators
The China Financial Futures Exchange (CFFEX) and the China Securities Regulatory Commission (CSRC) have declined to comment to Reuters regarding their guidance to investment funds to avoid bearish or short positions in Chinese equities. While regulators did not outline exact restrictions in unofficial guidelines, sources indicated they would likely limit short-selling activity tied to stock index futures as part of the ongoing stabilization efforts.
CSRC chairman Yi Huiman pledged on Tuesday to keep market operations stable with the full support of state capital. The State Council, China’s cabinet, has also promised stronger and more effective measures to bolster market confidence.
Related news indicates that futures contracts on the small-cap CSI 1000 index expiring in September 2024 traded well below the underlying index, underscoring ongoing volatility. Turnover in those futures rose sharply, reflecting heightened activity in risk management as investors reassessed exposure. A portion of the selling pressure in stock index futures appears to be linked to risk controls that amplified a cycle of stock and futures selling, sending ripple effects through broader markets.