China has banned major institutional investors from selling equity holdings during the 30 minutes at the open and close of each trading day, trying to put a floor under the nation's $8.6 trillion stock market.
This isn't the first time the Chinese government has banned selling in stocks, say investors.
But this year's market crash in China is a "much deeper, broader rout with no sign of lifting or any fundamental reason to," said Perth Tolle, who invests in emerging markets ex-China.
The government's interference is "a shortsighted move and kills confidence even more — and is a sign that there are no real long-term solutions in the works," Tolle said. The founder of Life + Liberty Indexes operates an emerging markets exchange-traded fund, the Freedom 100 Emerging Markets ETF, which weights companies inside of countries based on how they fare on issues of political and economic freedom. It has no China holdings.
The Chinese regulators did something similar in 2015, recalled Carson Block, founder of Muddy Waters Capital, a well-known short seller. His firm invested in China until 2021.
"The manipulation of markets by the CCP (the Chinese Communist Party) was a signal that such open dissent is not allowed," meaning investors selling Chinese stocks. "What they're doing now is a return back to crude measures. That tells me they're desperate."
Block said he sees a larger geopolitical shift at play, with investors and trading partners diversifying away from China and toward other countries such as Vietnam, where his firm opened an office in 2022.
Institutional investors are now caught in the middle of Chinese government interference — which will likely only worsen the sell-off, Tolle said.
"The government does care about the stock market, but the market is not something the government or anyone can control sustainably, but they're going to try anyway," she said. "Once you mess with natural market mechanisms in this way, it's no longer a market. So there's simultaneously a lack of respect for market functions and a desire to control it, which undermines those same functions."
Money has been flowing out of Chinese funds and even direct foreign investments have turned negative, for the first time in decades, according to Julia Axelsson, senior research director at NordSIP, an analytics firm focused on sustainability.
And yet this massive interference by regulators could mark a bottom.
"The Beijing put is in full effect," noted Jawad Mian, chief strategist and founder of Stray Reflections, a macro advisory firm that works closely with hedge fund CIOs and portfolio managers.
"When the party broadcasts its intentions, history tells us how reliably they execute them," Mian said. "Igniting a bull run is an increasingly urgent political objective. We believe Chinese equities have bottomed out. A multiyear bull market is on the horizon."
As a part of that "Beijing put," Central Huijin, the domestic arm of China's sovereign wealth fund, announced a renewed round of domestic ETF purchases. The China Securities Regulatory Commission issued a statement praising the move and encouraged other institutional investors to do the same: "We will continue to coordinate and guide various institutional investors to enter the market with greater efforts."
But the crackdown may not be followed by a more meaningful shift in macro policy, said Marko Papic, partner and chief strategist at the investment advisory firm Clocktower Group.
"We see two risks on the horizon that may end the tactical rally," Papic noted. Beijing might disappoint again at the upcoming Communist Party "two sessions," while the increase in rates by the Federal Reserve may weigh on global risk assets.
