One of the advantages of having so many of my students become traders in Hong Kong and the mainland is that I get to hear a lot of the rumors. Two of my former students recently told me about a rumor that seems to be very current in the market, and I called a third who also told me that he had heard it and he thought it was reasonably credible. The rumor is that last week the Social Security Fund was asked to sell off up to 30% of its A-share positions over the next 30 days.
The last time these kinds of rumors surfaced, I am told, was last May, just before the May 30 increase in the stamp tax that trashed the markets.The interpretation that these guys are putting on it is that we may finally see, early next month, the introduction of index futures. Since these instruments are not available to retail investors, who would probably use the futures as a way of taking leveraged long positions, but are likely to be used by institutions, who are expected to use this largely for shorting purposes, most people expect that the introduction of index futures will drive the market down.
Among other things a number of investors told me that they plan to buy H-shares and B-shares, which are at a deep discount to the A-share market, and hedge market risk by shorting the index. There will be lots of tracking error, but given the size of the discount most people are not terribly worried about it.
I have no idea if this true or not and of course make no representation that it is, but this does seem to be a common rumor, and even if it is not true it may affect market behavior in the near future.
Excellent rumour. Your story of events rings true. I have reported your post in full as part of a "share fall" piece - please let me know if you want me to remove it.
Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is a member of the board of directors of ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.
Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He is the author of several books, including The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001). He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.
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Comments (1) for "Index futures?"
- 11/12/2007 1:20 AM
January, 2008