Chinese Markets Plunge Amidst Widening Probes Against Brokerage Houses

Shares on the Shanghai Composite capitulated by more than -5% Friday, constituting its biggest decline since this summer.

Chinese stock markets plunged Friday, despite gradually alleviating concerns radiating out of China that its worst crash in years has run its course.

Earlier this week, the China Securities Regulatory Commission (CSRC) facilitated the shares required to engage in propriety trading, effectively lifting an order that required brokerages each day to buy more shares than they sell. The move was widely seen as an endorsement by Chinese regulatory authorities of a stock market rebound off of what was widely panned as the start of a new global recession.

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In tandem with the moves, many of China’s leading brokerage houses have been plagued by a string of probes and investigations – in many instances, leading executives have simply fallen off the map and have disappeared without contact since September.

Shares on the Shanghai Composite capitulated by more than -5% Friday, constituting its biggest decline since this summer. Adding to the volatility is the expected decision next week as to whether the International Monetary Fund (IMF) will include the yuan currency in its global reserve basket, a debate that has raged for months.

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Widening Probes

Indeed, the Asset Management Association of China (AMAC) also recently reported that the group could not even secure contact with twelve of the country’s hedge fund firms, which ultimately did little to allay any concerns raging over liquidity in China in recent months.

The country’s fourth-largest securities house, China Haitong Securities, was also reportedly under investigation by the CSRC Friday, according to a Reuters report. Regulatory authorities have been on a mission lately, helping crack down on illegal margin trading

Since June, with the initial market slide, China has undergone a massive and unprecedented relief effort, which has seen it crack down on insider trading and short-selling, which regulators admitted were partly to blame for volatility. It will be interesting to see if more fines and investigations transpire in the coming months as equity markets in China look to pare their summer losses.

Despite Friday’s losses, Chinese markets stand much higher than their summer lows, however Monday’s landmark IMF decision could help dictate the flow of markets in the coming month.

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