Calming the Markets: China’s Stock Exchanges Take Action
As the world’s second-largest economy enters a critical period, China’s main stock exchanges are taking proactive steps to stabilize the markets. In a bid to calm investor nerves, the Shanghai and Shenzhen stock exchanges have asked several large mutual funds to limit their stock selling at the start of the year.
A Delicate Balance
The exchanges made the request to at least four major mutual funds on December 31 and January 2 and 3, urging them to maintain a balance between stock purchases and sales. While the funds are allowed to sell stocks, they must ensure that their total selling values do not exceed their purchases. If they do, they will need to add more positions soon to fill the gap.
Economic Uncertainty Looms
The guidance comes as Chinese stocks have gotten off to a rocky start in 2025, with the CSI 300 Index plummeting 2.9% on the first trading day – its worst New Year start since 2016. The benchmark has lost more than 5% in the past week alone. The uncertainty surrounding incoming U.S. President Donald Trump’s trade policies has rattled the yuan and driven mainland bond yields and stock prices down.
Supporting Capital Markets
The exchanges’ guidance is just one of many measures authorities have taken to stabilize sentiment. In recent months, authorities have rolled out swap and relending schemes totaling 800 billion yuan to support stock purchases. Additionally, the Shanghai and Shenzhen stock exchanges have met with foreign institutions to boost investor confidence. The annual Central Economic Work Conference in December highlighted stabilizing stock and property markets as a top priority for 2025.
A Familiar Pattern
This is not the first time the exchanges have made such appeals to funds. Similar requests were made early last year when Chinese stocks slumped to five-year lows. The securities exchanges are taking a proactive approach to ensure market stability, and their efforts may become a regular feature of the market landscape.
A Critical Year Ahead
Chinese stocks marked their first annual gain since 2020 last year, closing up 14.7%. However, most of the gains were driven by a brief sharp rally following the announcement of a stimulus package in September. As the economy navigates uncertain waters, the exchanges’ guidance is a crucial step in maintaining market stability and supporting investor confidence.
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