Money Matters

Talk of 'foreign crocodiles' in China's stock markets vastly overrated

When an interest rate cut, a stamp duty chop and various policies have failed to stop the fall, Beijing has no alternative but find a scapegoat

PUBLISHED : Friday, 03 July, 2015, 10:21pm
UPDATED : Saturday, 04 July, 2015, 2:55pm

Market manipulation? Seriously?

Anyone with some understanding of the mainland's tight monitoring of the market will ask the question and chuckle while reading the following.

"The China Securities Regulatory Commission (CSRC) will launch an investigation into suspected market manipulation … the criminals will definitely be caught!" a commission spokesman said in a late evening announcement on Thursday.

"CSRC is angry; crackdown on malicious short selling," ran a headline in the state media yesterday.

"Fight malicious short sellers without mercy," said another.

The truth is the mainland's stock market is one of the world's most transparent, at least to its regulators.

Every investor holds and trades stocks via his or her personal accounts. The CSRC has the most powerful big data system, much envied by its foreign peers. And nor does it have to wrestle with the lawyers to get a broker to open its books.

Each and every transaction happens under the regulator's nose. So how could one possibly cook up a plot that pushed the market into a meltdown without the regulator being alerted?

The foreign "crocodiles", some shouted.

Morgan Stanley was singled out by a state media outlet yesterday for warning investors to stay away from the A-share market in a June 26 report, after forecasting in early December that the market could peak at 16,785 points. "Is this [about-turn] a matter of incompetence; or ill intent?" the Financial News asked.

"Not everyone wants to see China getting a strong capital market and having a successful economic reform," the paper said. "When the bull market of China is making an impact, someone wants to see China's capital-market-led reform strategy fail."

In a joint statement carried by state media, five academics said: "This is not an ordinary market correction. It is a battle for the 'China Dream' that we can't lose."

But while the greedy and hostile foreigner is an easy target, it is also one of little substance.

Their trading is not only peanuts in terms of size but also heavily restricted, so it can't call the market's tune.

Take the short selling via the Shanghai-Hong Kong Stock Connect scheme as an example. Only a limited number of securities can be short sold. The daily limit for each stock is 1 per cent of holdings of all foreign investors through the scheme.

Every week, brokers have to file a large open-short position report providing the names of investors and the stocks involved. By "large", it means positions of more than 25 million yuan (HK$31.6 million) or 0.02 per cent of the total issued shares of the stock concerned. That's not even a peanut.

Yet Beijing desperately needs a witch hunt.

Two-thirds of mainland stocks have lost more than 40 per cent since the market's June 12 peak. Cadres schooled in the planned economy have exhausted their tricks. When an interest rate cut, a stamp rate chop and various policies have failed to stop the fall, it is time to control the damage.

Beijing cannot tell the public that gravity works on stock markets, or - to quote a mainland blogger - "you cannot open a brothel, get the women to dress in almost nothing; and scold the men who come in".

After all, it was Xinhua that issued dozens of commentaries over the past six months, boosting the market rally as a reform-led bull instead of liquidity-led, despite a price-to-earnings ratio of more than 60.

It was the People's Daily that warned "over-cautious" regulators against reining in the "healthy bull".

And nor can Beijing tell the public that the source of the panic selling is a disorderly unwinding of multi-billion-yuan worth of margin finance that has been setting records for months.

After all, it was the CSRC which "retracted" every plan to bring down the ballooning margin financing and "clarified" every market caution the day after it was made public.

It was the central bank which endorsed the showering of bank loans over the stock market as "constructive to the real economy".

The manipulator hunt allows Beijing to find a villain and play the goody, hoping that investors will forget it was the one banging the gong all along.

After all, what other option does it have?

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