Could any market regulator, anywhere, possibly make a more counter-intuitive move?
Despite the growing backlash in key markets around the world against stock-shorting “spivs” and “speculators”, China on Friday became the only big stock market to take steps to actually encourage short-selling – previously off-limits.
As Bloomberg reports Friday, authorities in Beijing have agreed to allow investors to buy shares on credit and sell borrowed stock to help develop Asia’s second-largest market after prices and trading volumes slumped.
China’s State Council signed off on a plan submitted by the China Securities Regulatory Commission this month to allow margin lending and short-selling, said Bloomberg, citing an official familiar with the plan.
Beijing’s action contrasts with regulators in the US, Europe and Australia that have banned short selling in the past week to shore up financial shares battered by the global credit squeeze. China’s government is betting the changes will boost trading without spurring further declines after state share buybacks helped the CSI 300 Index rebound from a two-year low, notes Bloomberg.
As one fund manager told the news service: “It’s quite positive for the market and will help attract fresh capital into equities”.
The Chinese government carefully timed the move to limit the impact on the market’s stability, said the official. In an earlier move, China scrapped the tax on stock purchases and relaxed company buyback rules to help support the world’s second-worst performing stock market this year.
A dubious distinction, perhaps, and all very well; but is China really ready for this?
Related links:
Short-selling worldwide – FT Alphaville