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Regulatory Storm Triggers $2.6bn Outflow, China State Media Urge Calm

Sources said local CICC clients have not been able to add new positions via total return swaps, to make overseas investments, as it and other brokers seek to limit their derivative books. Photo: Reuters.

• China stocks steadied Wednesday after steep falls Monday and Tuesday

• Systemic risks ‘do not exist in the A-share market overall:’ Securities Times


A Chinese state-owned securities newspaper urged calm on Wednesday after investors dumped mainland shares to the tune of $2.6 billion on Monday and Tuesday due to worries over the impact of tighter government regulations.

Regulatory moves aimed at the education, property and technology sectors sparked heavy selling in Chinese markets this week, leaving global investors bruised and uncertain over the outlook for investments in Chinese firms.

Equity markets suffered outflows of $600 million on Tuesday after bleeding $2 billion on Monday, the Institute of International Finance (IIF) said.

“These are very weak figures compared to the first half of 2021, when monthly inflows averaged $5.8 billion,” said Jonathan Fortun Vargas, economist at the IIF. “This is likely due to Beijing’s regulatory actions in the past week.”

Hong Kong’s benchmark index and Chinese A-shares extended sharp losses to end at multi-month closing lows on Tuesday, as investors worried over the impact of tighter government regulations following a crackdown by Beijing on the tech and education sectors.

In a front page commentary on Wednesday, the state-owned Securities Times said that systemic risks “do not exist in the A-share market overall.”

“The macroeconomy is still in a steady rebound stage, and short-term fluctuations do not change the long-term positive outlook for A-shares,” the commentary said. “The recent market decline to some extent reflects misinterpretation of policies and a venting of emotion. Economic fundamentals have not changed and the market will stabilise at any moment.”

‘Structural Adjustment’

Other major securities dailies echoed the commentary in market reports.

In a front page story citing domestic fund managers, the official China Securities Journal said the sell-off was a “structural adjustment”, a sustained plunge is unlikely and the market does not face systemic risk.

A story in the state-run Shanghai Securities News quoted domestic analysts as saying that the sell-off would not continue, and that the market will gradually stabilise.

“For institutions, the decline brings the opportunity for positioning in high-quality shares,” it said.

What started off as a sell-off in shares on Monday had spread into fixed income and foreign exchange markets by Tuesday afternoon, sending the yuan falling through psychologically significant levels and pushing Chinese sovereign bond yields, and the cost of insurance against a default in China’s dollar debt, higher.




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