China’s stock probe puts investors on edge

Government investigates wild market swings

INVESTIGATIONS by Chinese authorities into wild stock market swings were spreading fear among China-based investors, with some unsure if they were simply helping with inquiries or actually under suspicion, executives in the financial community said.

Chinese fund managers say they have come under increasing pressure from Beijing as authorities’ attempts to revive the country’s stock markets hit headwinds, with some investors being called in to explain trading strategies to regulators every two weeks.

Risk

Ironically, the impact may be the opposite of what is intended. By frightening fund managers, Beijing risks accelerating the market sell-off and puts other wider policy goals, including the increased use of the yuan abroad, at risk.

One manager at a major fund – part of the “national team” of investors and brokerages charged with buying stocks to revive prices – said a friend, also an executive at a large fund, was recently summoned for a meeting with regulators, along with all other mutual funds that had engaged in short-selling activity.

“If I don’t come back, look after my wife,” his friend told him, handing the manager his home telephone number.

China has unleashed a volley of measures to try to prop up its stock markets that have fallen around 40 percent since mid-June, pushing domestic brokerages and fund managers to buy up shares and banning investors with large stakes from selling their holdings for six months.

The authorities’ meddling has unnerved many investors, leaving them questioning China’s commitment to liberalising its capital markets and the long-term future of the country’s stock markets.

Adding to those concerns is the fact that authorities have also been probing investment funds’ trading strategies, looking into whether they have been engaging in alleged “malicious” short-selling or market manipulation.

On Monday, Bloomberg reported that Li Yifei, the China chairwoman of Man Group, one of the world’s largest hedge funds, had been taken into custody to help with inquiries.

Reuters has not independently confirmed the report, while Li’s husband has said she is having “normal” discussions with regulators. Man Group shares fell as much as 6 percent on Tuesday following Bloomberg’s story.

Sources said the increased tempo of meetings with regulators had become intimidating, especially for foreign funds used to relying on Chinese brokers to represent them when dealing with Beijing.

While foreign investors are unlikely to be a major factor behind stock market swings, given their relatively low participation in the market compared with domestic players, they are seen as more politically vulnerable to investigations.

Some Chinese believe the collapse in stocks was engineered by foreigners, and there has been speculation it was caused by the US government to embarrass China. Some market participants have also said gyrations in Chinese shares can lead to US index provider MSCI further delaying the inclusion of A-shares in its emerging markets index. – Reuters ZAMBIA plans to narrow its budget deficit to about 5 percent of economic output next year, even after lowering its 2015 growth forecast for the second time since June. The shortfall would shrink from an expected 6.9 percent this year, Deputy Finance Minister Christopher Mvunga said in Lusaka. That is higher than an earlier government estimate of 4.6 percent. Sliding commodity prices and a power crisis have prompted Africa’s secondbiggest copper producer to trim its growth outlook to 5 percent, about 2 percentage points lower than the initial target in the budget, he said. The government planned to moderate spending by reducing the public-sector wage bill and scaling back road-construction projects, said Mvunga. “We are scrutinising expenditure very rigorously,” Mvunga said. “We now understand exactly where our pain points are.” Zambia’s government is trying to turn around a struggling economy as power utilities prepare to ration supplies to mining operations after water levels at hydropower dams declined because of a drought. Changes to the mining tax-regime that were reversed earlier this year have affected investor confidence and the government should pursue predictable policies, according to Fitch Ratings. – Bloomberg