(Bloomberg) — Chinese stocks rallied as authorities clamped down on trading by quant funds, the latest in a series of endeavors to put an end to the rout.
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The Hang Seng China Enterprises Index advanced 2.2% to close at its highest level in seven weeks. Property developers were among the biggest gainers following a state media report on billions of dollars worth of funding approved for the sector.
Wednesday’s advance may stoke optimism that policy efforts to rescue the equity market are paying off, at least for now. Measures have turned more forceful of late, with state funds seen actively purchasing shares. China’s two main stock exchanges vowed to tighten supervision of quantitative trading, taking their aim at leveraged products that have been blamed for triggering volatility.
“The crackdown on quantitative trading by regulatory agencies helped weaken short-selling forces,” said Shen Meng, director at Chanson & Co in Beijing. Investors are also looking ahead to announcements related to upcoming policy meetings, he added.
The HSCEI gauge has seen a trough-to-peak gain of 13%, the biggest since the reopening rally faltered at the start of last year. Earlier this week, lenders delivered a bigger-than-expected cut to a key mortgage reference rate. That came as the securities regulator said it will take heed of all suggestions from market participants and address their concerns promptly.
Meanwhile, the CSI 300 benchmark of onshore shares advanced 1.4% in its seventh straight session of gains, the longest winning streak in more than a year. Foreign investors snapped up more than 13 billion yuan ($1.8 billion) worth of domestic shares via trading links with Hong Kong, the most since July, according to Bloomberg-compiled data.
“It is necessary to crack down on quantitative trading now, given such trading behaviors have triggered a round of market rout,” said Yu Yingdong, general manager at Shenzhen Cowin Asset Management Ltd. “The regulatory crackdown is not a bad thing for the market, especially for retail investors. It is reasonable for the market to consolidate at this level.”
The restrictions on quant trading, however, risk driving away foreign investors and money managers who value to ability to trade freely. Some market participants also worry that the curbs are merely delaying a wave of redemptions.
Some of the top gainers in the HSCEI gauge including Longfor Group Holdings Ltd. and SenseTime Group Inc. were those that had been shorted the most, suggesting the outsize moves are partly driven by a rush to cover short positions.
The rally may also soon fizzle out if authorities fail to follow up with stronger measures to drive a fundamental upturn in the economy. Investors are now shifting their focus to the National People’s Congress in the coming weeks for clues on Beijing’s willingness to ramp up support.
“We believe the A-share market is bottoming with the support from Beijing,” said Kelly Chung, chief investment officer of multi assets at Value Partners. “However, sentiment remains weak, and investors will only return when they see improvement in the property sector and consumption demand.”
–With assistance from Mengchen Lu and Abhishek Vishnoi.
(Updates with market closing prices. Earlier version corrected references to days of week.)
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