Chinese Funds Seen Rushing to Sell Stocks Before Informal Ban

(Bloomberg) -- For some Chinese investors, the window to sell stocks is rapidly closing.

The nation's securities regulator has asked some funds to avoid net selling during the National People's Congress that starts on March 5, according to people familiar with the matter, who asked not to be identified discussing private information.

The request may have prompted some funds to reduce holdings this week, before the informal ban takes effect, analysts said. And it may be one reason why the Shanghai Composite Index has dropped 2.1 percent over the past two days, among the biggest declines worldwide.

“Some investors may want to cut risks, so they sold their holdings before the meetings,” said Steven Leung, executive director at Uob Kay Hian (Hong Kong) Ltd.

The moves underscore the impact of government meddling in China's $7.8 trillion stock market, which often intensifies during important political events. This year's NPC, which is expected to last a couple of weeks, is particularly notable. It's likely to result in constitutional changes that enshrine President Xi Jinping as the country's most influential leader in decades and allow him to rule indefinitely.

Read more: What an Extended Xi Presidency Means for China and the World

The Shanghai Composite fell 1 percent on Wednesday, following a 1.1 percent retreat on Tuesday. Other factors weighing on the market included weak Chinese manufacturing data and hawkish comments from U.S. Federal Reserve Chair Jerome Powell.

The China Securities Regulatory Commission didn't immediately respond to a faxed request for comment.

--With assistance from Abhishek Vishnoi

To contact Bloomberg News staff for this story: Steven Yang in Beijing at kyang74@bloomberg.net, Jeanny Yu in Hong Kong at jyu107@bloomberg.net.

To contact the editors responsible for this story: Jessica Zhou at jzhou75@bloomberg.net, Richard Frost at rfrost4@bloomberg.net, Michael Patterson

©2018 Bloomberg L.P.

With assistance from Steven Yang, Jeanny Yu