China allows short selling and margin purchases

Sept. 26 (Bloomberg) — China’s cabinet agreed to let investors buy shares on credit and sell borrowed stock to help develop Asia’s second-largest market after prices and trading volumes slumped, an official familiar with the plan said.

China’s government is betting the changes will boost trading without spurring further declines after state share buybacks helped the CSI 300 Index rebound from a two-year low.

China has scrapped the tax on stock purchases and relaxed company buyback rules to help support the world’s second-worst performing stock market this year.

The CSI 300 rose 0.9 percent today and added 8.2 percent this week, the first weekly gain in nine weeks.

On short selling

Selling borrowed stocks serves as a balance to buying stocks with borrowed money.

Careless leveraging will always cause greater evil than any size of short selling.

Short selling reduces volatility, cuts the bid/ask spread, makes the market more predictable.

Short selling provides healthier, higher quality market.

Industry Relative Strength

Industry group 1 month performance
Building – Residential 19.70%
Finance – Consumer loans 12.50%
Retail – Apparel Shoes 12.30%
Banks – major regional 11.30%
Banks – southwest 11.20%
Oil – US exploration -23.30%
Oil Field Machinery EQ -26.60%
Machinery – Electrical -27.20%
Steel – Producers -29.70%
Coal -65.57%
Money continues to slowly flow out of stocks. The one month
RS rank is occupied by members of the retail and financial
sectors. For first week since middle of July, they experienced
stronger selling pressure.
The usual suspects at the bottom (commodity related industries)
finished the week lower, despite showing some resilience as the
weekend approached. The small bounce in Thursday and Friday
is most likely due to short covering than a consequence of
renewed funds’ long interest.
Market’s weakness is spreading slowly in all directions and there
are fewer places to hide. If you are a retail investor, flexibility is
your biggest weapon. There are no good or bad stocks, only
good or bad trades.