Beijing’s bid to rein in speculators could hit Hong Kong stock market
Regulator tries to ease market fears, saying it is ‘protecting investors’
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Regulator tries to ease market fears, saying it is ‘protecting investors’
Ray Chan
19 April 2015
The Hong Kong stock market is expected to take a hit after Beijing announced measures to rein in speculation, after the country’s benchmark index doubled in 10 months to its highest level since March 2008.
Late on Friday, regulators announced that fund managers would be allowed to lend shares for short selling, while some margin trading would be banned.
Chinese stock-index futures and US-listed Chinese stocks tumbled after the announcements by the China Securities Regulatory Commission and the Securities Association of China.
Last night, the CSRC moved to allay market fears of a clampdown, saying on its microblog that the measure was not intended to encourage short selling, nor depress the market. “Investor protection is part of developing the capital markets,” Deng Ge, a spokesman for the CSRC, wrote on its official microblog account.
Deng added investors should not misinterpret the new measures, which he said aimed to raise awareness of risk control. Most traders and analysts had been anticipating moves to calm the city’s stock market before the announcements came out.
Regulators have been on alert over the recent liquidity-driven rally in mainland and Hong Kong stocks after a slump in the property market saw the mainland’s first-quarter economic growth fall to 7 per cent, its lowest level in six years.
“Mainland regulators have reacted in a timely fashion by pouring cold water onto the red-hot stock markets, which are basically supported by a huge sum of borrowed money,” said Louis Tse Ming-kwong, a Hong Kong-based director of VC Brokerage. Tse said he expected Hong Kong stock valuations to go down after rising since April 8.
The CSRC warned retail investors, who are the key drivers of China’s stock market rally, not to borrow money or sell property to buy stocks. It said many such investors were not fully aware of the risks and costs associated with margin finance when volatility hits the market.
After China’s stock turnover reached a record 1.53 trillion yuan (HK$1.94 trillion) on Friday, regulators banned so-called umbrella trusts, which allow for more leverage than brokerage financing because the borrowing involves small-cap stocks that trade over the counter rather than on the exchange.
Tse said most retail investors had little knowledge of risk management and could be hit by big losses in the event of a major market correction.
Stock turnover in Hong Kong has surpassed that of the United States for the first time, with a daily record of HK$294 billion notched up on April 9.
“Most institutional investors and companies have taken advantage of robust market conditions to raise funds while retailer investors are flocking into the markets,” said Ben Kwong Man-bun, a director of KGI Asia.
Kwong said he expected shares that have benefited from the liquidity boom to be the first ones hit by the new measures.
US-traded shares of Chinese stocks fell on Friday, with China Life Insurance plunging 6.6 per cent to US$72.02.
Meanwhile, margin account balances hit 1.15 trillion yuan on Friday. That was more than triple the 263 billion yuan recorded at the end of June, when the Shanghai Composite Index plunged to an all-time low. The benchmark index has risen 32 per cent this year, building on a 53 per cent increase last year.
The Hang Seng Index fell 0.31 per cent on Friday. On a weekly basis, the index rose only 1.4 per cent last week.