Hedge fund managers in China have been asked to restrict their use of short selling to further protect the country’s ailing equity markets.
According to a Reuters report, the China Securities Regulatory Commission approached a select number of hedge funds to advise them to restrict short selling in the stock index futures market.
Of particular concern to the CSRC and the China Financial Futures Exchange is the use of speculative or ‘naked’ short selling. This is in contrast to the use of short selling for hedging purposes.
No formal ban on short selling has been issued but, according to a source cited by Reuters, some investors have also been advised to unwind any heavily short positions as soon as possible.
The actions are yet another step taken by regulators to shore up China’s stock market. The blue chip CSI300 index has reached near five-year lows of late and speculation is mounting that China is preparing a US$278 billion rescue package for domestic stocks in addition to the various other regulatory steps that have been taken.
At the same time, China continues to court foreign investors. At the recent World Economic Forum, Chinese premier Li Qiang in his keynote address told the audience: “Choosing the Chinese market is not a risk but an opportunity”.
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