Why China A shares often react strongly to rumors

January 31, 2019 08:59
Chinese investors sometimes believe market rumors more than they trust state media. Photo: Reuters

China's A shares took a dive on Tuesday amid market rumors involving Yi Huiman, the new chairman of the China Securities Regulatory Commission (CSRC).

The Shanghai stock market opened that day only 0.2 percent lower despite news that the US Department of Justice on Monday filed criminal charges against Huawei and its chief financial officer Meng Wanzhou, and formally requested Canada for her extradition to the United States.

At around 10 a.m., the market suddenly fell by about 2 percent as rumors spread that Yi, in his first press conference as the new CSRC head, said a short-selling mechanism will soon be introduced in the market. Several local news media attributed the "report" to Bloomberg.

Two hours later, CSRC issued an official statement saying that chairman Yi has not held any press conference recently and dismissed the news as "pure rumor".

Bloomberg also issued a statement denying making such a report.

Why are Chinese investors so sensitive to market rumors?

One reason could be that rumors turn out to be correct from time to time.

For example, a rumor had been circulating early last week that a new CSRC head would be appointed soon. On Jan. 24, the state mouthpiece Securities Daily dismissed it as fake news, citing unnamed sources.

However, on Jan. 26, the government announced the appointment of Yi Huiman, the chairman of Industrial and Commercial Bank of China (01398.HK, 601398.CN), as the new CSRC chairman, exactly what the rumor said.

Because of such incidents, Chinese investors sometimes believe market rumors more than they trust state media. Besides, it's hard for them to cross-check information given their lack of access to international media.

This article appeared in the Hong Kong Economic Journal on Jan 30

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist