China Allows Short Sales, Margin Loans to Help Market (Update2)
By Zhao Yidi and Zhang Shidong
Sept. 26 (Bloomberg) -- China's cabinet agreed to let investors buy shares on credit and sell borrowed stock to help develop Asia's second-largest market after prices and trading volumes slumped, an official familiar with the plan said.
The State Council signed off on a China Securities Regulatory Commission plan submitted this month to allow margin lending and short selling, said the official, who declined to be identified as he isn't authorized to speak on the issue.
China's action contrasts with regulators in the U.S., Europe and Australia that have banned short selling in the past week to shore up financial shares battered by the global credit squeeze. China's government is betting the changes will boost trading without spurring further declines after state share buybacks helped the CSI 300 Index rebound from a two-year low.
``It's quite positive for the market and will help attract fresh capital into equities,'' said Wu Kan, a fund manager in Shanghai at Dazhong Insurance Co., which oversees the equivalent of $285 million. ``Given the current level the index is standing at now, I do think some investors will buy low through margin trading so as not to miss the boat.''
In short sales, investors sell stock they don't own, betting they will be able to buy it back at a lower price and profit from the difference. They borrow money to buy stocks in margin trading if they expect share prices will rise.
The Chinese government carefully timed the move to limit the impact on the market's stability, said the official.
China has scrapped the tax on stock purchases and relaxed company buyback rules to help support the world's second-worst performing stock market this year.
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