China eases stock net-selling restrictions for mutual funds amid market challenges

In a move aimed at revitalising a struggling stock market, China's securities regulator, the China Securities Regulatory Commission (CSRC), has lifted the ban on mutual fund managers selling more shares than they buy each day.

According to a Reuters report, the restriction, imposed late last year, prohibited major mutual fund companies from engaging in net-selling, aligning with top leadership calls to stabilise the market.

While the CSRC has not officially commented on the policy shift, sources in correspondence with Reuters suggest that growing redemption pressures on funds may have influenced the decision.

"If you cannot net sell stocks, you don't have the money to repay redeeming investors," Reuters quoted one source as saying.

The change in policy signals a departure from the earlier approach that prohibited net-selling of stocks, introducing a more flexible stance to address the challenges facing the stock market.

The sources further told Reuters that unofficial, verbal guidance from regulators, commonly known as "window guidance," has diminished in recent days.

This adjustment comes against the backdrop of China's CSI300 Index experiencing an 11 per cent decline in the previous year, positioning it among the world's worst-performing markets.

The market faced headwinds from a sluggish post-COVID economic recovery, a deepening property crisis, and escalating geopolitical tensions.

Despite various government support measures implemented in 2023, including a reduction in stamp duty on trading and restrictions on share sales, China's blue-chip index, CSI300, remained disappointing.

In the latest market-supportive measure, the CSRC informally encouraged major mutual fund managers to prioritise the launch of equity-based funds over funds based on other securities.

The move aims to inject vitality into the market and boost investor confidence. However, the market response has been tepid, with the CSI300 index hitting its lowest level in nearly five years on Monday.

Traders attribute this decline to a lack of confidence in the domestic economy's strength and increasing tensions with the US and its allies.

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