Foreign investors will be able to short sell shares in mainland China next month for the first time under Shanghai-Hong Kong Stock Connect, the Financial Times reported.
Citing a circular from Hong Kong Exchanges and Clearing Ltd. (HKEx), it said short selling of stocks eligible for trading under the cross-border trading scheme will begin March 2.
“This will be the first time that foreigners will be allowed to short sell [in the mainland] under a clearly defined program,” Fraser Howie, an author and expert on the development of China’s capital markets, was quoted as saying.
China intends to put strict limitations on the practice, which involves betting that a firm’s stock will fall in price by selling borrowed shares and then buying them back cheaply when it drops.
HKEx said the number of shares in any particular stock eligible for shorting will be capped at 1 per cent a day, or 5 per cent over a 10-day period.
“These new rules seem to defeat the idea of shorting. The limits are so severe that short selling will have very little value either as a market indicator or on valuations,” the newspaper quoted Carl Walter, a China securities expert, as saying.
Domestic investors have been able to short sell shares since 2008.
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