China's move to curb short selling sparks market rally
China's stock markets have rebounded after the country's securities regulator announced a full suspension of the lending of restricted shares for short selling, effective from Monday. The move is seen as the latest effort by policymakers to stabilize the markets amid recent volatility and uncertainty.
Restricted shares are those that are subject to lock-up periods after initial public offerings or private placements. They are usually held by strategic investors, such as founders, executives, or institutional investors. According to the China Securities Regulatory Commission (CSRC), these investors have been lending out their shares to securities finance firms, which then provide them to brokerages for short selling.
Short selling is a practice where investors borrow shares and sell them in the hope of buying them back at a lower price and pocketing the difference. It can be used as a hedging strategy or a speculative bet against a company or a market. However, it can also amplify market fluctuations and create downward pressure on share prices.
The CSRC said that the suspension of restricted share lending is aimed at preventing the circumvention of lock-up rules and protecting the legitimate rights and interests of strategic investors. It also said that it will crack down on any illegal activities related to short selling and maintain market order and stability.
The announcement came after the MSCI China Index, which tracks Chinese companies listed in Hong Kong and the US, plunged 60% from its peak in February 2021, amid concerns over China's regulatory crackdown on various sectors, such as technology, education, and property. The index posted its first weekly gain of the year last week, after the central bank announced a reserve requirement ratio cut and plans for targeted stimulus.
The suspension of restricted share lending has boosted market sentiment and triggered a rally in Chinese stocks on Monday. The Shanghai Composite Index rose 2.4%, while the Shenzhen Component Index jumped 3.6%. The ChiNext Index, which tracks technology and innovation firms, soared 4.9%. The Hang Seng Index in Hong Kong also gained 1.8%, led by tech giants such as Tencent, Alibaba, and Meituan.
Analysts said that the move is a positive signal for the market and shows that the authorities are trying to balance regulation and growth. They also said that it could reduce the supply of shares available for short selling and ease the downward pressure on stock prices.
However, some also cautioned that the suspension of restricted share lending may not have a lasting impact on the market, as it does not address the fundamental issues that have weighed on investor confidence, such as regulatory uncertainty, slowing economic growth, and rising inflation.
Sources:
[China securities regulator suspends restricted share lending from Monday](https://www.msn.com/en-us/money/markets/china-securities-regulator-suspends-restricted-share-lending-from-monday/ar-BB1hn8M2)
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