The regulator still allows selling of A-shares but the scale has to be minimised, according to a news report by Tencent’s QQ Finance News. More specifically, fund managers can adjust the content of their portfolios but the funds’ overall holdings in A-shares should remain at the same level.
It is uncertain if the measure is temporary, according to the report.
The regulator’s concern is that a period of weaker trading and a sudden contraction of liquidity in China’s stock market might cause redemption pressure on the mutual funds.
The regulator also pointed to the high-flying Shanghai-listed liquor giant Kweichow Moutai. China’s state media agency Xinhua has noted that the stock price is “climbing too fast” and it “distracts from rational investments”.
The news has spurred a market slump for seven days and dampened investor sentiment. Shanghai- and Shenzhen-listed stocks have traded weaker this week. The SSE Composite Index, composed of large-cap firms trading in Shanghai, saw a 2% decline, falling to a three-month low. It has also been the biggest drop since December last year.
A-share redemptions by mutual funds happened twice in the past two years — at the time of a trading suspension on specific stocks after a massive tumble in July 2015 and after the introduction of “circuit breaker system” for A-shares, which put the mainland’s market in a temporary halt last year.
Luo Jing, senior portfolio manager at Value Partners, said that although the instruction had not been verified by officials, it is in line with the regulator’s aim to stabilise the equity market, which is largely driven by retail investors. “The mainland’s regulator has been delivering a message that it hopes to see a less bumpy stock market, compared to the market crashes back in 2015,” he said.
The report comes just after the China Securities Regulatory Commission was said to halt funds that plan to allocate more than 80% of assets to Hong Kong equities earlier this week.
The suspension reflects the concern of the mainland’s authority over a surging Hong Kong stock market, where its flagship benchmark Hang Seng Index hit 30,000 points last Tuesday. The mainland joint ventures of First State, HSBC and Invesco are among the firms awaiting approval for Hong Kong equity funds.
Luo, however, explained that the regulator has required fund managers who oversee the products investing in the Stock Connect scheme to have at least two years of experience, which might be the cause of the approval delay.
