China is probing hedge funds that profit from its economic misery, report says

China is cracking down on hedge funds that short sell its stocks, according to a Reuters report.

REUTERS/China Daily

• China is scrutinizing hedge funds betting against its struggling economy, according to Reuters.
• Beijing has put the squeeze on brokerages that use quantitative strategies to short-sell the market, the outlet reported.
• The regulatory push comes with the flagship CSI 300 index down 5% this year.

China is probing the activities of hedge funds that use quantitative trading strategies to bet against its struggling stock market, according to Reuters.

The country's Securities Regulatory Commission has reached out to several major brokerages to ask about the trading strategies being deployed by some of their clients, the publication reported early Thursday, citing sources with direct knowledge of the investigation.

Beijing's latest squeeze comes in the middle of a rough year for the world's second-largest economy, which is battling weaker-than-expected growth, deflation, and a property-market crisis.

That's dragged down Chinese stocks this year, with the flagship CSI 300 index down 5% and Hong Kong's Hang Seng index slumping 11% so far in 2023.

Those dismal returns have sparked social-media outrage and led to top investors and retail traders alike questioning the strategies used by both quant funds and short sellers.

As well as pushing back against these trading strategies, policymakers halved the stamp duty that investors are required to pay when trading stocks last month in a bid to revive China's stagnant markets.

Beijing has also instructed top economists not to discuss issues like deflation, faltering growth, or slumping exports in a bid to prevent them from painting the country in a bad light, according to the Financial Times.

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