Amidst a bone-jarring 40% plus decline in Chinese stocks earlier in the year, Chinese authorities wheeled out unprecedented measures to stem the markets losses. Futures trading was limited, some investors were banned from selling, many state-backed organisations were ordered to buy and those who were deemed to have maliciously sold stocks were arrested, among others.
Graduating students from Tsinghua University were even ordered to chant phrases of support for the nation’s stock market.
“Revive the A shares, benefit the people; revive the A shares, benefit the people,” the students were made to chant according to a story that featured in the Financial Times in July.
Yes, the response to stock market carnage was unusual to say the least, but in the end Chinese policymakers and authorities got their way. China’s stock markets have recovered, putting on over 20%, while the sharp intraday volatility – something that saw the benchmark Shanghai Composite index regularly trade in 5% plus trading range – has also diminished.
While stocks are now behaving in a manner deemed to be acceptable, at least according to the wishes of Chinese regulators, it’s clear that the investigation into why the stock market plunge occurred in the first place is far from over. Not by a long shot.
According to a report from Bloomberg, China’s Citic Securities – the firm at the centre of a government probe into China’s stock-market rout – has been unable to make contact with two of its senior executives, Chen Jun and Yan Jianlin, members of the brokerage’s eight-person executive committee.
On November 26 Citic confirmed that the China Securities Regulatory Commission, China’s stock market regulator, has been investigating the firm over alleged breaches of rules on short-selling and margin contracts.
In an exchange filing made by the Beijing-based group on Sunday, the firm noted that Chen and Yan were “suspected of being requested to assist in an investigation,” a reference to a report from China’s Caixin magazine on December 4 which stated the pair were taken away by authorities amidst uncertainty as to whether they were being investigated or assisting in a probe into China’s stock market plunge.
According to Bloomberg, if the involvement of Chen and Yan in the probe is confirmed, it would bring to at least 10 the number of Citic Securities executives implicated in the investigations to determine the causes of the stock plunge that wiped out $5 trillion of market value.
The government’s ongoing investigation into the firm, along with peculiar developments such as the one reported over the weekend, has seen shares in Citic punished by investors. As the chart below reveals, Citic shares in Hong Kong have fallen 39% year-to-date according to data from Yahoo Finance, a significantly larger slide than the 5% decline recorded by the Hang Seng over the same time period.
Clearly, those firms looking to hitch their wagon to China’s services-led growth boom must be prepared to play by the government’s rules. If not, the risks may not be worth the rewards, something Citic’s executive team are discovering all too well at present.
You can read more from Bloomberg here.
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