Is it possible that the turmoil over GameStop (GME) stock trading in the US stock market will also occur in China?
February 8, 2021 | AtoZ Markets – The turmoil in the US stock market at the end of January is said to have stimulated the crypto asset community in China, leading to a rise in Dogecoin (DOGE) and Bitcoin (BTC). As a result, some experts say ‘retail frenzy could flare up soon in Asia, including China.
“The frenzy over GameStop has inspired amateurs everywhere to shake up stock markets,” proclaimed CNN. “Now China’s massive army of retail investors wants to get in on the action.”
Why GameStop isn’t coming to China’s stock markets
While some may think China would be the obvious place for the retail investor revolt to spread further, it would be logistically challenging for Chinese retail investors to organize a short-selling campaign, especially with the authorities watching.
“The Chinese financial regulators are closely monitoring who are trading what in the Chinese stock market. Retail investors involved in large-scale malicious shorting could be put in jail,” said Jason Wu, CEO of crypto-lending firm DeFiner.
“The market cap of the crypto market in China is extremely small compared to the Chinese stock market, so all the authorities’ eyes are on the disruptors of the stock market,” Wu added.
Chinese regulators strict on short-selling
The China Securities Regulatory Commission (CSRC), a financial regulator, has been closely monitoring short sales since the stock market crash in 2015.
In 2015, one-third of the value of A-shares, which are shares of public companies based in mainland China, was lost on the Shanghai exchange in a month, and more than half of listed companies suspended trading to prevent further losses. I applied.
The cause of the historic crash is still unknown, but some prominent economists have accused short sales of the crisis at the time.
“It was margin trading and short selling that ended the bull market before the 2015 market crash,” said Shuwei Liu, a researcher at the Central University of Finance and Economics Financial Research Institute in July 2015, op-ed titled, “Chinese Stock Short Shellers Should Be Heavily Punished.”
“A-shares are still an emerging market. CSRC cannot put leverage tools under its control. Creating an environment that frees short-selling in these situations gives weapons to illegal A-share short-selling traders. It’s like being there, “Liu points out.
The CSRC allowed margin trading and short selling in March 2010.
The People’s Bank of China (PBoC) has evacuated that foreign financial institutions are manipulating the market by short-selling Chinese stocks in large numbers, and US investment bank Morgan Stanley contributes to troubles in the Chinese stock market.
Social media collaboration is also impossible
“While Chinese retail investors could technically carry out shorting stocks on a small scale, there is no way the financial regulators would let anything like the GameStop short squeeze happen to the Chinese stock market,” DeFiner’s Wu said.
It is logically difficult for Chinese retail investors to organize coordinated moves such as the GameStop stock campaign. An important part of the GameStop stock campaign was the popular bulletin board site Reddit, where anonymous users could get together to discuss short-selling strategies for bargain stocks.
There are about 177 million investors in China, holding 28.6% of the market capitalization of the stock market. Most of them communicate on social media platforms such as WeChat, QQ, and Weibo. However, moderators can censor “illegal content” on the platform.
“Unlike many tech-savvy crypto traders, many retail stock investors do not have VPN or any other kind of access to encrypted messaging apps such as Telegram or Signal,” Wu said. “I can’t imagine a large group of people would be allowed to talk about shorting stocks on a public forum such as Zhihu,” the Chinese answer to Reddit.
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