Sun, Sep 25, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

China attempts to modernize market, allows launch of stock-index futures, use of margin trading and short-selling on trial basis

Monday, January 11, 2010
Opalesque Industry Update - The China Securities Regulatory Commission (CSRC) agreed in principal to allow the launch of stock market index futures, and to allow investors the use of short selling and margin trading of stocks, on trial basis, the CSRC said in a statement released on its website.

These reforms had been approved already in 2008 but they were delayed due to the global financial crisis, according to the CSRC. The Chinese government believes that these reforms are an important step in the development of their capital markets and will inject new vitality into the securities market.

The Economic Times (ET) reported on 8-Jan that Index futures will be traded on the China Financial Futures Exchange in Shanghai. These index-futures need 3 months to start up while the trial period for margin trading and short selling will begin sooner.

Huang Yan, fund manager at Guotai Fund Management Co in Shanghai told the ET: "This is positive news for the market, and it will likely change people's investment strategies."

The ET further reported that this announcement was a shot in the arm for investors who badly needed a hedging tool post-recession. In the absence of such hedging tools in the past, investors did not have many options to cut their losses in the event of a falling market other than to sell-off their shares, thereby causing the market's decline further.

The New York Times said recently that the introduction of short-selling in China would not match with the recent regulations adopted in other parts of the world. In response to the global crisis, U.S., British, French, Italian and German regulators in recent weeks banned short-selling of financial stocks temporarily, while Australia, Singapore and Taiwan restricted the practice.

Jiang Yingkun, an analyst at Guotai Jun'an Securities Co., told the Shanghai Daily: "The government approved the two products at the same time to balance the market, as index futures is always seen as a negative signal for the market while margin trading is to boost the market."

In 2006, China established its only financial futures exchange for the debut of index futures, which will be based on the CSI 300 index that tracks the top 300 mainland-listed firms. However, there have been some concerns with the index futures because it has the potential to destabilize the stock market.

The NYT said China, since 2006, had been considering starting margin trading - in which investors can borrow money from brokerage businesses to buy shares - and short-selling - in which they borrow stocks from brokers and sell them, hoping to buy them back at lower prices. The CSRC expected margin buying would greatly exceed short-selling in the initial stage because brokerage businesses had only a limited amount of stocks available to lend.

Some other market watchers welcomed this news. Jeff Papp, a senior analyst at Lisle, Illinois-based Oberweis Asset Management Inc. told Business Week: “A potential long-term development is more clarity in the market now that there’s more liquidity in the market for the true valuations of the companies that are dual listed.”

While, Eric Conrads, a hedge fund manager at Armada Capital SA, a Mexico City-based partnership with ING Investment Management, which invests in China through U.S.-listed shares and exchange-traded funds, said “China is going to the direction of freedom for its markets and more flexibility for its investors so it’s good news.” Written by SC -


Bg

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. North America - Acela fight splits hedge fund Connecticut and old money enclaves[more]

    From Bloomberg.com: Connecticut’s residential coastline is two worlds, the one of newcomer millionaires and one whose wealth and New England roots span generations. Now, their differences over a rail route threaten to gum up plans for the U.S. Northeast’s fastest-ever trains. About 30 miles from Man

  2. Activist News - Caesars offers creditors another $1.6bn, would spell end of hedge fund ownership, Activist investors double chance of CEO exits[more]

    Caesars offers creditors another $1.6bn, would spell end of hedge fund ownership From Calvinayre.com: Casino operator Caesars Entertainment has improved its offer to junior creditors to over $5b, but the offer is only good until Friday. On Wednesday, Caesars added an extra $1.6b to the $

  3. Opalesque Exclusive: Modern investor tools (2): A platform that does the job for you[more]

    Benedicte Gravrand, Opalesque Geneva: A new series on technology providers that assist asset allocators. There is disruption in the investor part of the world of hedge funds, coming from platforms that can replace traditionally-run search and analysis. Here is one of them. L

  4. Hedge funds saw four consecutive months of outflows in August, but assets still up by $17.6bn YTD[more]

    Komfie Manalo, Opalesque Asia: Hedge funds witnessed four consecutive months of outflows with investor redemptions totaling $23.8bn as of end of August, data provider Eurekahedge said in its monthly report. But total hedge fund assets grew by

  5. Trend reversals lead to losses as managed futures drops 1.52% in August[more]

    Komfie Manalo, Opalesque Asia: Trend reversals in August have led managed futures traders to lose 1.52% last month according to the Barclay CTA Index compiled by BarclayHedge. The Index is up 0.62% year to dat