According to analysts at Bloomberg, the actions of the Chinese authorities may cause long-lasting damage to the stock market.
The recent measures the Chinese government took to stop the fall in the country's stock market may provoke the opposite effect, Bloomberg notes. As a result, the positive achievements as well as investors’ confidence of recent years could be lost.
The fact is that China’s government introduced restrictions and a temporary ban on the work of so-called quantum funds that make investment decisions based on algorithms using artificial intelligence (AI). This is their difference from traditional funds, where the final decision is made by managers.
Such actions dealt a blow to algorithmic trading but allowed it to reduce selling and strengthen stock indices. Nevertheless, China’s stock market temporarily plunged into chaos. This came as a shock to market participants. Experts consider these measures to be authorities’ interference in trade and their desire to control the situation fully.
Against this backdrop, international investors prefer to avoid putting money in the Chinese stock market. At the moment, big traders choose more reliable assets and are focused on Japanese and Indian stocks, which are at all-time highs.
According to analysts, Beijing's restrictions are of a large-scale nature. At the moment, the heads of quantum funds need to inform about strategies before the start of trading, and then their actions are subjected to a thorough analysis.
In addition, the Chinese authorities have created a securities supervision group that issues warnings to traders who earn money by selling. The strategy of making money on falling stocks is carefully monitored. This group places restrictions on selling, even for large institutional investors. According to representatives of Shanghai-based Semimartingale Private Fund Management, such a decision is the biggest "black swan" in the quantum investment industry.
According to some analysts, this policy will force Beijing to pay a lot to support the stock market. However, the strategy is unlikely to help China. Foreign investors may continue to massively withdraw their funds.
