Amidst plummeting stocks, China restricts shorting of stock index futures
China's stock market regulators have directed some hedge fund managers to limit short selling in the nation's stock index futures market in an effort to stabilize plummeting stocks. One hedge fund manager disclosed that he received calls from China's financial futures exchange, warning against reckless short selling, particularly "naked" short selling that is not intended for hedging purposes.
Chinese regulators make 'informal requests' to prevent short selling
Another anonymous hedge fund manager stated that the China Financial Futures Exchange (CFFEX) had informally requested his firm to refrain from short selling for speculative reasons recently. Both the CFFEX and the China Securities Regulatory Commission (CSRC), which supervises the exchange, did not provide any comments on the issue.
China's stock market lost $6 trillion in last 3 years
China's stock market has been languishing since February 2021. Over the past three years, the combined losses of the Chinese and Hong Kong stock exchanges amount to almost $6 trillion. So far this year, the Hang Seng index has crashed 10% while the Shanghai Composite and Shenzhen Component indexes are down 7% and 10%, respectively. These losses point toward a much larger crisis of investor confidence which is premised on macro-economic issues ailing the Chinese economy and its future.
What is causing investors to lose confidence in China's economy?
The issues that are crippling the Chinese stocks are based on China's economy. Issues like a record downturn in real estate, deflation, debt, a falling birthrate, and shrinking work force, as well as ideology-driven policies have rattled private sector and repelled international companies. Yesterday, Chinese Premier Li Qiang ordered officials to take "forceful and effective measures" to stabilize markets. The investors have demanded the Chinese government to take immediate measures to fix its stock market.
