China’s CSRC Said to Guide Funds to Cut Small-Cap Exposure

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CSRC Chairman Xiao Gang
Investors, especially new investors, should “fully evaluate risk in stock market investment” and be cautious, CSRC Chairman Xiao Gang said in an April 16 speech posted on the agency’s website. Photographer: Brent Lewin/Bloomberg

China’s securities regulator has suggested that some funds reduce their exposure to small-cap stocks listed on the ChiNext board, said people with knowledge of the matter.

The China Securities Regulatory Commission is concerned inexperienced individual investors may be misled by the rapid increase in prices of shares traded on ChiNext and may be at risk of large losses, said the people, who asked not to be identified as the discussions were private.

The ChiNext Index jumped 6 percent on Friday to a record and has doubled this year. The CSI 300 Index, tracking the largest companies on the Shanghai and Shenzhen stock exchanges, has gained 29 percent this year.

“This may help small-cap stocks to revert to normal value,” said Ronald Wan, chief executive of investment bank Partners Capital International Ltd. in Hong Kong. The prices are currently “distorted” by market speculation, he said.

China’s stocks pared the biggest weekly slide in five years on Friday, as weak trade data spurred bets on further economic stimulus and investors speculated a link between exchanges in Shenzhen and Hong Kong will start this year. The Shanghai Composite Index has gained 109 percent over the past 12 months amid speculation the government will extend interest-rate cuts and speed up mergers of state-owned firms.

A call to the CSRC outside regular hours wasn’t answered.

Bull Market

Investors, especially new investors, should “fully evaluate risk in stock market investment” and be cautious, CSRC Chairman Xiao Gang said in an April 16 speech posted on the agency’s website.

China’s bull market is benefiting from attention paid by government leaders and real economic reforms, according to a commentary on the front page of the China Securities Journal on Friday. The bull market will usher in a “golden age” in Chinese capital markets, the commentary said.

The People’s Bank of China said in its monetary report published Friday that it will walk a fine line in its policy operations to prevent excessive easing from pushing up debt levels.

Margin traders increased holdings of shares purchased with borrowed money on Thursday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising by 0.6 percent to a record 1.27 trillion yuan ($204.6 billion).

— With assistance by Heng Xie, and Feifei Shen

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