According to the data from the Financial Times (FT), Chinese authorities restricted short-selling to prevent the national stock market from slumping.
Thus, they raised requirements for institutional clients to keep the national stock market from further collapse. At present, state funds and financial institutions in China are engaged in large-scale purchases of securities.
Institutional investors are prohibited from selling securities on particular days. These measures are called window guidance from regulators. Experts suppose them to be effective. Notably, in early 2023, such actions allowed the CSI 300, which measures the largest national companies, to recover slightly.
Later, the government loosened the introduced measures, thus causing negative consequences. The growth in stocks was replaced by a decline. Since the beginning of 2024, the CSI 300 index has dropped by more than 4%. That is why the Chinese authorities revised the previous requirements and expanded the window guidance for large institutional investors that both act as brokers and have proprietary trading arms.
However, pressure from the authorities has become a pitfall for institutional traders. At the moment, China’s government is trying to stop the fall in the stock market, investment reduction, and the outflow of capital from the country, but to no avail. Many investors do not support the measures aimed at boosting the local economy.
“The change of direction by regulators, the latest in a series of U-turns, was distorting the market and undermining broader confidence," the Financial Times wrote.
According to Bloomberg, since the beginning of 2024, foreign investors have sold shares of Chinese companies worth 7.9 billion yuan ($1.1 billion). This is the worst result in the last five years. “The selling came after foreigners recorded their smallest-ever annual purchases of onshore stocks in 2023, putting January on track for a sixth straight month of outflows,” the article reads.
Earlier, the Chinese authorities took measures aimed at improving the situation in the country. Some of them were quite unexpected, for example, banning negative comments from leading experts and social media users as they form false narratives and expectations. In addition, the burden on top managers of a number of companies has increased. This is reflected in a rise in hours spent studying the ideas of Chinese leader Xi Jinping.
