Probes of insider trading to deepen
Beijing is stepping up a crackdown on insider trading as rampant hot money flows into the roller-coaster stock market.
The State Council expressed late on Thursday the government's determination to deepen its investigation of suspicious trades. The statement is likely to result in a withdrawal of some speculative funds from mainland exchanges.
It was the first time the cabinet has publicly addressed the problem of insider trading. Analysts expect regulators now to unearth a series of scandals sooner rather than later.
'The statement itself was symbolic rather than substantive,' Kingsun Investment Management analyst Dai Ming said. 'But it is a clear message to the big players: 'Stop the nasty practices and behave yourself.''
The State Council also clarified the roles of the China Securities Regulatory Commission (CSRC) and four other authorities - the State-owned Assets Supervision and Administration Commission, the Ministry of Public Security, the Ministry of Supervision and the National Bureau of Corruption Prevention - in the fight against stock market irregularities.
The statement is a sign that law enforcement departments, in addition to the CSRC, are deeply involved in the investigations, analysts said.
The Shanghai Composite Index dropped 3.2 per cent this week, following a decline of 4.6 per cent last week. The falls followed a hefty gain of 20 per cent since late September.
'Every time the authorities announced they would tighten oversight of market irregularities, bearish sentiment has set in,' Dazhong Insurance fund manager Wu Kan said.
'The statement could be read as a warning to investors that any wild rally now would be short-lived, since it would be against the government's will.'
The mainland market experienced a bull run between 1999 and 2001 before getting mired in a four-year bearish trend.
In late 2000, a scandal involving the illegal practice of price rigging by fund managers was uncovered by Caijing magazine, resulting in a crisis of confidence.
At that time, leading economist Wu Jinglian likened the stock market to a casino, warning retail investors of the risk in playing the market.
CSRC chairman Shang Fulin is a strong advocate of weeding out market irregularities. The securities watchdog launched a high-profile national probe into financial institutions last year.
The campaign has yet to pay dividends, however, since only a handful of unethical fund managers has been uncovered.
Xinhua reported that the regulator was investigating 100 cases of suspicious trades in the first 10 months of this year, with insider trading suspected in 74 of them.
Li Youhuan, a professor at the Guangdong Academy of Social Sciences and a researcher into fund flows, said the recent inflow of hot money was 'unprecedented', as a strengthening yuan attracted speculative funds to the mainland's volatile stock market and its vulnerable real estate sector.
'The bigger the funds are, the more likely they would collude with listed companies' executives and domestic fund managers to engage in insider trading,' Dai said.
'The money does the talking.'
The number of suspected insider trading cases under investigation by the CSRC this year, according to Xinhua: 74