February 05, 2024 12:44 GMT
Wire Source Reports Point To Further Back Channel Support
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MNI (London) - RTRS sources report that “Chinese brokerages, including state-owned behemoth CICC, have restricted the amount of cross-border swap transactions domestic investors can undertake, as authorities seek to defend the weak stock market.”
- The RTRS sources went on suggest that “since Monday, domestic CICC clients cannot add new positions via total return swaps, to make overseas investments, as the broker seeks to limit its derivatives book. At least three other major Chinese state brokerages have taken a similar approach.”
- RTRS sources also flag that “it has been a popular OTC cross-border derivative for Chinese onshore funds, especially hedge funds, to access offshore stock markets, effectively side-stepping restrictions on capital flows.”
- One of the sources flags that “the restrictions could thwart domestic fund managers who were tapping TRS to short-sell offshore China stocks, such as China A50-related contracts.”
- A similar BBG sources piece noted that “at the same time, some Chinese brokers that use the channel to buy mainland shares for their offshore units were told not to reduce their positions.”
- The BBG source report went on to suggest that “some quantitative hedge funds meanwhile were banned from placing sell orders completely starting Monday, while others were barred from cutting stock positions in their leveraged market-neutral funds. These bets, known as a Direct Market Access strategy, are believed to have amplified the recent sell- off in small-cap stocks.”
- On net, these reports point to the latest round of potential back-channel support for Chinese equities, with the CSRC pledging to step up its support for the space.
- The CSRC issued a vow to implement measures re: risks of stock pledges earlier on Monday.
- Headwinds for the Chinese stock market are well-defined, as is the increase in supportive rhetoric from the authorities and footprints of state-backed support via ETF purchases in recent times. The CSI 300 still languishes near Friday's 5-Year lows.