BLBG: China Futures Tumble on Trust Curbs, Expansion of Short Selling
Chinese stock-index futures tumbled in after-hours trading after regulators clamped down on the use of shadow financing to buy equities and expanded the supply of shares available for short sellers.
FTSE China A50 Index futures for April delivery tumbled 5.1 percent in Singapore at 6:53 p.m. local time. The China Securities Regulatory Commission banned the margin trading businesses of brokerages from taking part in umbrella trusts, while the Securities Association of China said fund managers can lend shares for short selling.
Investors have ramped up wagers on stocks by borrowing through umbrella trusts, which allow for more leverage than brokerage financing. Permitting mutual funds to lend their holdings to short sellers would make it easier for bearish traders to bet on a retreat after the benchmark Shanghai Composite Index more than doubled over the past 12 months.
“The surge recently has been a little too fast for the regulator’s comfort,” said Hao Hong, the chief China strategist at Bocom International Holdings Co. in Hong Kong. “The market should consolidate, as it is overbought and part of the market is overvalued.”
The Shanghai Composite is valued at 21.1 times reported earnings, the highest since April 2010 and more than double last year’s low, according to data compiled by Bloomberg. The MSCI Emerging Markets Index trades at 13.7 times.
