(Bloomberg) — Chinese stocks continued volatile trading on Monday following last week's selloff as investors weighed policymakers' latest promises to stabilize a struggling stock market.
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Small-cap stocks fell, with the CSI 1000 index down more than 8% during the day. 984 of the bill's participating members ended morning trading lower. The CSI300 index temporarily fell 2.1%, but the decline was reversed, but the Shanghai Composite Index halved the decline, dropping 1.8%.
China has vowed to stabilize markets after Friday's chaotic trading sent stocks to a five-year low, but policymakers have not given concrete details on how they plan to end the rout. was not disclosed. The latest threat to hit stocks is increasing downward pressure from margin calls and forced liquidations by interested parties.
The CSI 1000 gauge, often used as the underlying benchmark for snowball derivatives, is facing selling pressure as the instrument reaches so-called knock-in levels that result in losses for investors.
“We are at the usual stage, and we are at the final stage of the decline, where things are going to get serious,” said Ma Xuzhen, a fund manager at Longquan Investment Management. “There's no point in getting anxious at this stage. We all know we're near the bottom. Maybe it's better for margin calls and other risks to collapse. That way the country When the government intervenes in the purchase, the government can keep the money it gives it.”
Read more: China 'snowball' derivatives worth $13 billion near loss level
The persistent recession has raised fresh fears of a wave of margin calls as the value of stocks seized as collateral declines. The concern is that if you fail to replenish your margin trading account, you could be forced to liquidate your positions.
The China Securities Regulatory Commission said on Sunday it would guide more medium- and long-term funds into the market and crack down on illegal activities such as malicious short selling and insider trading, pledging to prevent abnormal volatility.
This statement alone is likely to prove insufficient to persuade traders who have been repeatedly disappointed by the government's phased approach to stimulus. Investors are concerned about a negative loop in which technical selling pressure caused by margin calls and snowballing derivatives exacerbates market declines.
A recent surge in trading volumes in some exchange-traded funds suggests that Chinese state funds may have intervened to support the market. But history has shown that these purchases rarely have staying power.
“Mid-cap and small-cap stocks are under strong selling pressure as some investors bet on greater varsity support for large-cap stocks,” said Ken Wong, Asian equity portfolio specialist at Eastspring Investments. ” “Trading long CSI 300 and short trading CSI 500 and CSI 1000 is one such popular trade.”
Meanwhile, Liu Yuhui, an academic at a government-run think tank, reportedly said that the country should establish a stock stabilization fund as soon as possible to improve market confidence, with the goal of increasing its size to 10 trillion yuan. was quoted. ($1.4 trillion) or more.
Foreign funds briefly turned net buyers in morning trading, a pattern that was also seen on Friday. As of the midday break, stock withdrawals totaled 729 million yuan ($101 million).
In a sign of how angry some investors are, thousands of people flooded the social media accounts of the US embassy in Beijing to air their frustrations over the weak economy and stock prices. Chinese internet users often struggle to find an outlet to air their grievances about the economy and government's performance, and official accounts of state institutions and media typically disable commenting functions or only display selected feedback. It's either you do it or you do it.
“It remains to be seen whether today is the bottom for Chinese stocks, but it feels like a bottom has been reached, indicating that policymakers don't want them to fall any further,” said strategist David Chao. That's for sure,” he said. At Invesco Asset Management.
–With assistance from Charlotte Yang, Abhishek Vishnoi, and April Ma.
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