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China Turns To Xi For Advice On Stock Crisis
"Ok, I'm here. What's the problem?"
"Well, sir, it's the stocks."
"What about the stocks?"
"They won't stop falling."
"Have you tried threatening them?"
"The stocks?"
"The people selling them."
I don't know exactly how it'll go when Xi Jinping meets with regulators to discuss China's never-ending equity bear market. Probably not quite like the satirical exchange "quoted" above. But if it's good ideas China's bureaucrats are looking for, they're not going to get any from Xi. On the contrar
This seems like a naive question, but here goes. Suppose China simply banned all securities other than vanilla long equity. No options, no swaps, no derivatives of any sort, no short-selling, etc. You can buy and sell common shares and that’s it. What would happen, short and long-run?
I wonder this not because I’m suffused with sympathy for the CCP’s PPT, but partly because I don’t really understand what useful function derivatives serve, and partly because that might be the logical direction of the restrictions announced to date.
JL – I’m with you on that question. But suggest any restrictions on short selling you will bring the wrath of the market purists will descend upon you. How dare you suggest anything that will inhibit short-term speculators!
But worry not, our friends on the street will just offer more offshore products so you can continue to drive Chinese stocks lower.
derek, can you give me the TL:DR on how those offshore products work and if/how the CCP can shut them off?
More generally, I’m thinking Xi’s inner circle is probably not full of market purists. Perhaps they are inclined to see derivatives etc as “low-quality” market activity, as corrosive Western influence like low-cut jeans and feminism, or even as “threats to security”. Maybe bans like those mooted above are not as unthinkable to the Xi-men as they are in the US. If so, there’s at least a outside chance that we could wake up and find the “undesirable” parts of China’s securities market – you know, the selling part – headed for “lockdown”.
For your answer to that question refer to the Gulf exchanges, Dubai bans short selling due to religious reasons.
I believe short-selling is currently banned in South Korea.