China to tighten restrictions on capital outflows amid market downturn

The Financial Times reports that Chinese officials are tightening controls over capital outflow by restricting access to funds meant for foreign equities purchases in the event of a major market collapse.

About one-third of Chinese funds taking part in the Qualified Domestic Institutional Investor (QDII) program’s overseas stock sales have either lowered their sales volume or ceased selling to regular investors.

Given the popularity of foreign-focused funds among individual investors, this method seeks to ease fears over capital flight. Because the QDII program is the sole approved route for Chinese private investors to buy foreign stocks and bonds, institutions may avoid capital limitations.

Because of the surge in demand for these funds, some have sold more than they are allowed to, and authorities have ordered others to reduce or stop selling. Chinese investors make up around 30% of all QDII funds targeted at non-Hong Kong international markets; 53 have set a sales cap, while 79 have suspended selling. This contains the funds managed by JPMorgan Asset Management and Manulife Investment Management.

Authorities are working with the Shanghai Stock Exchange to stop “abnormal trading” in exchange-traded funds (ETFs), which invest in overseas stocks. Regulators have received complaints from brokers marketing funds via the QDII program about ETF transactions, especially those that mirror indexes such as the MSCI USA 50, the Nasdaq 100, and the Nikkei 225 in Japan.

It is said that in an attempt to protect Chinese share prices amid a steep downturn, officials advised a small number of institutional investors not to sell local companies. Since October, private directions, often known as “window guidance,” have been issued to stop certain investors from being net sellers on specific days. The benchmark CSI 300 index in China has decreased by over 5% since the beginning of 2024 due to political unrest and worries about a slow economic recovery.

Original story by: Asia Gaming Brief