China Regulator Vows To Curb Margin Trading, Short Selling

In recent weeks, Beijing has rolled out an unprecedented series of support measures to prevent a full-blown market crash, including cajoling Chinese brokerages and pension funds to buy stocks and cracking down on short-selling.

Airlines led declines in Hong Kong.

In Australia, the S&P/ASX 200 index rose 0.6% to 5,509.20.

The Shanghai Composite Index surged 4.9 percent on Monday, posting the broadest rally in at least 17 years on speculation that China will start a new round of consolidation among state-owned companies.

The sell-off followed news of the People’s Bank of China’s surprise move to devalue its currency. China Southern says every 1 percent drop in the yuan cuts 767 million yuan ($122 million) from annual profit, according to the carrier’s analysis in its 2014 financial report.

“There are lots of listed SOEs on this market, which leaves a lot of room for imagination”, said Li Jingyuan, general manager of the securities investment department at Shanghai Zhaoyi Asset Management. Turnover on Chinese bourses fell to a five-month low on August. 6.

The benchmark Shanghai index is basically at the same level as when the government intervened and is still well below the 4,500 level.

But Hong Kong and Shanghai both ended see-saw sessions around the flatline, after China announced a sharply lower daily reference rate for the yuan against the US dollar.

“Reform of the SOEs has to happen”, said Andrew Sullivan, head of sales trading at Haitong global Securities Group Ltd.in Hong Kong.

The country’s exports fell by 8.3% in July, far worse than expected and the producer price index was down 5.4% from a year earlier. DBS Bank fell 2.90 percent to Sg$19.73 while Singapore Telecom was down 1.72 percent to Sg$3.99.

“The good thing about the story of SOE reform is that it’s hard to prove wrong and it’s a grand topic”, Xue said.

Other Wall Street names with China exposure such as Micron Technology, Texas Instruments and Starbucks are less reliable, trading negative half the time or more. This convinced practically everyone that a “big bull” market, possibly lasting a decade, had begun and spurred investors to buy stocks at already-high prices.