China stock probes send shivers through investment community

Wed Sep 2, 2015 6:35am EDT
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By Pete Sweeney and Engen Tham

SHANGHAI (Reuters) - Investigations by Chinese authorities into wild stock market swings are spreading fear among China-based investors, with some unsure if they are simply helping with inquiries or actually under suspicion, executives in the financial community said.

Chinese fund managers say they have come under increasing pressure from Beijing as authorities' attempts to revive the country's stock markets hit headwinds, with some investors now being called in to explain trading strategies to regulators every two weeks.

Ironically, the impact may be the opposite of what is intended. By frightening fund managers, Beijing risks accelerating the market selloff and puts other wider policy goals, including the increased use of the yuan abroad, at risk.

One manager at a major fund - part of the "national team" of investors and brokerages charged with buying stocks to revive prices – said a friend, also an executive at a large fund, was recently summoned for a meeting with regulators, along with all other mutual funds that had engaged in short-selling activity.

"If I don't come back, look after my wife," his friend told him, handing the manager his home telephone number.

China has unleashed a volley of measures to try to prop up its stock markets .CSI300 .SSEC that have fallen around 40 percent since mid-June, pushing domestic brokerages and fund managers to buy up shares and banning investors with large stakes from selling their holdings for six months.

The authorities' meddling has unnerved many investors, leaving them questioning China's commitment to liberalizing its capital markets and the long-term future of the country's stock markets themselves.

Adding to those concerns is the fact that authorities have also been probing investment funds' trading strategies, looking into whether they have been engaging in alleged "malicious" short-selling or market manipulation.   Continued...

An investor looks at a newspaper in front of an electronic board showing stock information at a brokerage house in Beijing, August 27, 2015. REUTERS/Jason Lee