By VW Staff. Originally published at ValueWalk.
Chinese police are teaming up with the country’s securities regulator to investigate clues pointing to potentially ‘malicious’ short-selling of Chinese shares, according to state news agency Xinhua on Thursday.
A recent sell-off in China’s stock markets is the first major challenge facing the country since the introduction of margin trading, and is believed to have been at least caused by short-sellers (at least, according to the Government version of it).
China Police visited securities regulator’s office
According to Xinhua, Chinese police visited the office of the China Securities Regulatory Commission to investigate evidence of ‘malicious’ short selling of stocks and indexes. Vice Public Security Minister Meng Qingfeng visited the regulator’s offices in Beijing on Thursday.
The latest development emerges after the SCRC pledged to ‘strictly’ punish market manipulation and China’s state-run media blamed short selling, rumor-mongering and foreign meddling for fueling the stock slide.
As detailed by ValueWalk on Wednesday, Chinese government has banned large shareholders from selling shares. The government agency charged with regulating China’s largest state-owned firms announced Wednesday that it had told them to stop selling shares and to buy more “in order to safeguard market stability”. The agency also ordered directors, executives and senior managers of publicly traded companies who have sold shares within the past six months to buy them back.
Despite these aggressive measures, China’s stock markets have plunged roughly 30% over the last three weeks. However, the benchmark Shanghai Composite Index rose 2.6% to 3,598.96 on Thursday, its highest level since Monday. The benchmark was up 1.3% as of 11:49 a.m.local time.
There are reports indicating the SCRC is reportedly soliciting proposals from institutions to rescue the market. Brokers are also reportedly promising not to force liquidation of shares held by investors facing margin calls.
Bill Gross, George Soros blamed
Bill Gross, the famed Janus Capital Group Inc. money manager recommended shorting the Chinese stock market last month before it plunged, though he didn’t actually do the trade. Last April, he recommended the “short of a lifetime” against the German bund and failed to profit even as his prediction came to fruition, thus making his call “well-timed but not necessarily well-executed”.
In his interview with Bloomberg Television, Gross said instead of shorting an exchange with 60% to 70% of its stocks frozen, he took advantage of other markets that would be affected by China.
Interestingly, in a report on the Chinese news site ifeng.com, an analyst said the recent sell-off in China was akin to what took place in Hong Kong in 1997, when the territory’s benchmark Hang Seng Index plunged 60% after peaking at 16,673 points. The analyst indicated that the 1997 crash in share prices in Hong Kong was caused by financier George Soros, and trading practices similar to some seen then were observed in the last two trading sessions in China.
Sign up for ValueWalk’s free newsletter here.
