The stock rally has prompted authorities to roll out measures this year that signal an effort to temper gains and prevent another boom-and-bust cycle after a record number of novice investors entered the market. China’s securities regulator started a campaign on Friday to crack down on stock- market manipulation and insider trading, the latest effort to reduce risks.
The China Securities Regulatory Commission will target trading by brokerage employees using non-public information, and market manipulation, including of futures prices, the CSRC said in a Friday statement on its website.
Chinese officials are trying to find a balance between weeding out speculators and encouraging the stock market to play a bigger role in helping companies raise funds as the government reins in credit expansion. The CSRC and central bank Governor Zhou Xiaochuan have endorsed the flow of funds into equities.
The speed and size of the breakout on China’s stock market creates a quandary for late comers because of the risk that a consolidation of short-term gains could be outsized relative to what one might be used to, but “normal” relative to the size of the breakout.
As with any breakout from a long-term range there is a great deal of trepidation among those who were previously bearish because they are now either losing money or at least receiving margin calls on short positions. The response is either to switch sides and become a bull (Hugh Hendry for example) or to double down and become even more bearish.
The increase in short interest may be a signal that long investors are hedging their exposure, the volatility of the move to date is fertile ground for options strategies and/or that bears are increasing their bets. We will continue to be guided by the price.