China markets regulator to protect small investors as stocks hit 5 yr lows

Chinese shares gyrated on Monday, sinking to 5-year lows, after stock market regulators sought to reassure jittery investors with a promise to crack down on stock price manipulation and malicious short selling.

Shares in Shanghai and the smaller market in Shenzhen, near Hong Kong, swung between big losses and small gains throughout the day. The markets have languished on heavy selling of property shares that have suffered with a slump in the real estate market.

Market observers said there were signs the authorities had, as is often the case, ordered big institutional investors to step up buying of state-owned banks and other heavyweights.

 

The Industrial & Commercial Bank of China gained 2.3 per cent, Bank of China was up 2.6 per cent and the Agricultural Bank of China rose 2.2 per cent.

But shares still mostly lost ground. The Shenzhen Component index lost 1.1 per cent after dipping as much as 4.4 per cent. The Shanghai Composite index shed 1 per cent to 2,702.19, having lost 3.5 per cent earlier.

Wilder swings were seen in the CSI 1000 index, an exchange-traded fund that fell as much as 8.7 per cent on Monday before regaining some of the losses to close down 6.1 per cent. The CSI 1000 is often used to track so-called snowball derivatives which offer big gains but also can result in exaggerated losses.

Chinese companies have lost billions of dollars worth of market value as investors shifted away from the markets in Hong Kong and the mainland in search of better returns.

Apart from the troubles in the property market, where developers are struggling to restore their balance sheets after the government cracked down on excessive borrowing several years ago, a slowing of China's economy, the world's second largest, has also taken a toll.

Prices have continued to fall despite various confidence-boosting measures rolled out so far, including freeing up more than 1 trillion yuan ($140 billion) for lending to developers.

The China Securities Regulatory Commission's announcement on Sunday appeared to be designed to reassure individual investors who account for more than half of trading volume.

Among other things, it said the proportion of shares subject to risks from short-selling had fallen from 10.5 per cent in 2018 to about 3.4 per cent now. It said so far such trades had accounted for only 27.4 million yuan (about $3.5 million) a very small fraction of market turnover.