China's primary stock exchanges have advised major mutual funds to limit stock selling in order to stabilize the turbulent stock market. This guidance comes as the nation grapples with economic uncertainties, particularly in light of potential trade tensions with the incoming U.S. administration.
The Shanghai and Shenzhen exchanges have reached out to at least four large mutual funds, urging them to ensure that their daily stock purchases exceed their sales. This proactive approach is part of a broader strategy to bolster market confidence and mitigate the impact of external pressures.
Similar requests were made to fund managers at the beginning of the previous year when Chinese stocks hit five-year lows. The exchanges have indicated that while funds are permitted to sell stocks, they must ensure that their total selling does not surpass their buying activities. If selling exceeds purchases, funds are expected to quickly reinvest to balance their positions.
The recent guidance from the exchanges reflects a pattern of intervention aimed at stabilizing market sentiment. The Chinese government has implemented a series of measures to support capital markets, including swap and relending schemes totaling 800 billion yuan. These initiatives are part of a concerted effort to restore investor confidence and stabilize the financial landscape as the country navigates a challenging economic environment.
The backdrop of these developments is a complex economic landscape characterized by sluggish growth and external pressures. The anticipation of Trump's second presidency has heightened concerns about trade relations, leading to increased volatility in the yuan and a decline in both bond yields and stock prices.
The Central Economic Work Conference held in December underscored the importance of stabilizing both stock and property markets as a top priority for 2025, signaling a commitment to fostering a more resilient economic framework.
Despite the current challenges, Chinese stocks managed to achieve their first annual gain since 2020, closing up 14.7% last year. However, this increase was largely driven by a brief rally following the announcement of a stimulus package in September, raising questions about the sustainability of such gains in the face of ongoing economic headwinds.
The actions taken by the exchanges and the government will be closely monitored by investors and analysts as they seek to navigate the complexities of the Chinese market in the coming year.