-
Advertorial
-
FOCUS
-
Guide
-
Lifestyle
-
Tech and Vogue
-
TechandScience
-
CHTF Special
-
Nanshan
-
Futian Today
-
Hit Bravo
-
Special Report
-
Junior Journalist Program
-
World Economy
-
Opinion
-
Diversions
-
Hotels
-
Movies
-
People
-
Person of the week
-
Weekend
-
Photo Highlights
-
Currency Focus
-
Kaleidoscope
-
Tech and Science
-
News Picks
-
Yes Teens
-
Budding Writers
-
Fun
-
Campus
-
Glamour
-
News
-
Digital Paper
-
Food drink
-
Majors_Forum
-
Speak Shenzhen
-
Shopping
-
Business_Markets
-
Restaurants
-
Travel
-
Investment
-
Hotels
-
Yearend Review
-
World
-
Sports
-
Entertainment
-
QINGDAO TODAY
-
In depth
-
Leisure Highlights
-
Markets
-
Business
-
Culture
-
China
-
Shenzhen
-
Important news
在线翻译:
szdaily -> Opinion -> 
Hunt down ‘tigers’ in the stock market
    2015-11-09  08:53    Shenzhen Daily

    Lin Min

    linmin67@hotmail.com

    CHINA’S legendary investor Xu Xiang kept himself from the public spotlight, never letting his photos appear in the media, even though the unusually high profits of the funds he managed drew much attention.

    Many people were stunned when they saw Xu’s photo on social media and news websites for the first time last week, which showed him in handcuffs after being detained by a police officer over allegations of insider trading and market manipulation.

    Xu, the 37-year-old manager of Zexi Investment, one of China’s largest private money managers, oversaw more than 10 billion yuan (US$1.57 billion), and was regarded as one of the country’s most successful investors, with Zexi’s products enjoying stunning returns from 62 to nearly 300 percent. Two of its star products, funds No. 3 and No. 1, took the top two slots on the Chinese fund performance rankings. Even when the benchmark stock market indicator sank 35 percent in three weeks in mid-June, five of Zexi’s funds reported at least 20 percent growth in net asset value.

    Some of Zexi’s heavily invested stocks, including Deluxe Family, Shanghai Metersbonwe Fashion & Accessories and Eastern Gold Jade, became darlings of China Securities Finance Corp., the vehicle of the government in trying to stop the stock market’s panic plunge earlier this year.

    However, it was these unusual returns that aroused suspicion about Zexi’s possible involvement with insider trading and speculation that Xu colluded with some of those who managed the government’s rescue funds to make illegal profits.

    Xu’s arrest followed the investigation of more than 10 officials at CITIC Securities, one of the country’s top securities brokerage houses, including president Cheng Boming, also reportedly over allegations of insider trading.

    Whether Xu and the CITIC Securities executives under probe are guilty of insider trading and market manipulation remains unknown. However, the Chinese stock market is known for rampant insider trading and price rigging.

    China’s stock market watchdog has promised to crack down on these irregularities. Li Qihong, the former mayor of Zhongshan City in Guangdong, was sentenced to 11 years in prison in 2011 for insider trading and accepting bribes. Li, her husband and relatives were charged with making 19.8 million yuan through trading shares of Zhongshan Public Utilities Group with insider information obtained from the chairperson of the Zhongshan firm.

    However, such crackdowns have apparently failed to stem the widespread irregularities that have plagued the Chinese stock market since its inception 25 years ago, partly because such investigations usually implicate powerful officials at State-owned enterprises and the government officials who are behind them.

    Xu’s investigation could validate suspicions that managers of the country’s mutual funds and private wealth managers collude with government officials and executives at State-owned enterprises in making illegal profits using insider information.

    Insider trading means illegal profits for perpetrators and losses for other investors. A stock market will turn away investors if it is not fair and transparent. Although the stock market watchdog has promised to tighten law enforcement to ensure a fair and transparent market, investors won’t be satisfied until more effective and powerful measures are taken.

    

    There are lots of stocks that trade in suspicious manners that merit a serious investigation. Before China CSR Corp. suspended trading of its shares on Oct. 27, 2014, the stock rose from 5.27 yuan on Oct. 16 to 5.8 yuan on Oct. 24, with trading volume several times normal volume, while the benchmark Shanghai stock indicator dropped from 2,361 to 2,302 in the same period. CSR began to jump after announcing a plan to merge with China CNR Corp. on Dec. 31, 2014, peaking at 39.47 yuan on April 20, 2015. Those who rushed to buy CSR with the insider information about the merger plan before the plan was announced made astonishing profits, at the expense of other investors who bought the stock at high prices.

    Although investors have called for an investigation into possible insider trading relating to the merger, the watchdog has not given a response. The fact that CSR and CNR are State-owned giants should not be a reason for them to avoid regulatory scrutiny.

    When the Communist Party of China’s Central Commission for Discipline Inspection announced it would send a team of inspectors to China Securities Regulatory Commission (CSRC) — the stock market regulator — and financial institutions last month, investors expressed hopes on online forums that the country’s anti-corruption campaign will extend to the financial and securities sectors, hunting down “tigers” and “flies” that damage the interest of ordinary investors.

    The stock market meltdown this summer revealed excessive speculation, flawed regulation and lax law enforcement. The investigation into CITIC Securities executives and a high-ranking CSRC official could also expose dangerous cozy relations between executives of State-owned enterprises and regulators.

    China is about to start revamping State-owned enterprises (SOEs) as part of its effort to shore up sagging growth. However, insider trading can flourish as mergers, acquisitions and restructuring usually offer plentiful opportunities to reap illegal windfalls for those who have access to insider information. Therefore, reform of SOEs should come with tighter law enforcement on the stock market. The development of the capital market will be undermined if investors are denied fairness and transparency.

    The investigation into CITIC Securities executives and Xu is expected to reveal the magnitude of irregularities. In addition to hunting down “tigers” and “flies” in the market, policymakers should use this opportunity to craft institutional changes to sever the ties between SOE executives and regulators and bring landmark changes to the way the market is regulated.

    (The author is head of the Shenzhen Daily News Desk.)

深圳报业集团版权所有, 未经授权禁止复制; Copyright 2010, All Rights Reserved.
Shenzhen Daily E-mail:szdaily@szszd.com.cn