Chinese officials told some fund managers and brokers recently to avoid major equity sales ahead of the Communist Party’s five-yearly Congress, which will be held in about three weeks time.
The order, which aims to avoid big market fluctuations, was orders were given verbally by the Shanghai and Shenzhen Stock Exchanges through so-called “window guidance”, or unofficial policy directives with no written documents, one source said.
“They asked (us) to avoid abnormal trading activities, including massive sell-offs and buy-ins. Basically it’s a move to stabilise the market,” the source said.
Another buy-side source said they also received the notice. “It’s politically sensitive,” the source explained. They asked not to be named due to the sensitivity of the issue.
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China’s ruling Communist Party opens its 20th Congress on October 16. It is likely to end with President Xi Jinping anointed for a third, five-year term as the supreme leader and a shuffle of personnel on the decision-making Politburo.
In late July, the Shanghai Stock Exchange (SSE) vowed to maintain market stability ahead of the Party Congress, saying it will “resolutely” prevent big and swift swings in capital markets.
A compliance officer at a Shanghai-based mutual fund house said he had not received window guidance, but that helping to ensure market stability ahead of the congress “is a natural responsibility” for fund managers.
China’s main stock benchmark CSI 300 has lost roughly 6% so far this month, and more than 20% so far this year.
Risk appetite has been dampened by gloomy growth prospects as Covid outbreaks, property market woes and heightened geopolitical tensions hurt economic growth.
China’s Shanghai and Shenzhen stock exchanges and the China Securities Regulatory Commission (CSRC) did not immediately reply to requests for comment.
PBOC Cash Injection
In related news, China‘s central bank stepped up cash injection towards the quarter-end by making the biggest daily offering in seven months on Tuesday.
The People’s Bank of China (PBOC) injected a total of 175 billion yuan ($24.46 billion) via open market operations, including 113 billion yuan through 7-day reverse repos and another 62 billion yuan through the 14-day tenor, it said in a statement.
The PBOC said the higher daily cash injection was to “maintain liquidity level stable at end of the quarter”, according to the statement.
The daily cash injection was the biggest since February 28.
- Reuters with additional editing by Jim Pollard
NOTE: Additional details on the PBOC cash injection were added to this report on Sept 27, 2022.
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