Calm Chinese Stocks? It’s the State’s Doing

 

Chinese markets have become much less volatile than they used to be. This is partly because the government has ordered brokers and exchanges to turn away large sell orders. If this is violated, both brokers and sellers may be contacted and warned. Restrictions on sales may also be ramped up during moments that the government considers politically sensitive. All of this means that securities markets in China are not real markets at all. Foreign investors need to be aware of this.

(From The Wall Street Journal)

Three years after a national uproar when Chinese stocks plunged by nearly half in just over two months, traders and brokers say regulators are increasingly stepping in to influence trades and make China’s markets appear less volatile, especially during political events when Beijing wants to project stability.

The steps, aided by advanced surveillance techniques to monitor traders, include warning brokerage firms to police trades that are out of step with government wishes and phoning investors directly when they act out of line.

“Hello? Is this Mr. Chang? Yes, this is Mr. Lee from the Communist Party. Yes, yes, well we saw that you took on a very large short position on some companies that we would prefer you go long on. Do we understand each other? Excellent. Be sure to phone your broker right now. We’ll be listening.”

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