China's Iron curtain to shroud real-time value of mutual funds to curb panic selling

Representational Image. Reuters

China is soon going to discontinue the real-time display of estimated net value for mutual funds in order to prevent speculative day trading and avoid disseminating information that could worsen panic selling by investors.

Unnamed sources cited by the Securities Times have stated that regulators have instructed mutual fund companies and third-party data providers in the country to cease offering such information before June 16.

The objective of this move is to encourage investors to focus on long-term investment, as stated by the sources.

This reported decision coincides with a recent decline in Chinese stocks, attributed to a weakening economic recovery and persistent geopolitical tensions that have brought an end to an impressive reopening rally.

It further highlights the longstanding concerns of authorities regarding the potential for volatile fluctuations in a market primarily driven by individual investors who often engage in speculative activities using mutual funds.

The report suggests that the real-time display of estimated fund values has the potential to trigger irrational buying and selling behaviors. It also raises concerns about compliance issues, as data providers may exert pressure
on mutual fund houses to disclose the latest information on their holdings.

Furthermore, the report highlights that the value estimates can be misleading due to possible distortions caused by significant redemptions or purchases near the end of a trading day.

Wu Xuan, the chief market analyst at Tebon Fund Management Co., was quoted saying that this measure will contribute to stabilizing market fluctuations, as some funds may have been engaging in arbitrage based on these real-time calculations. Additionally, Wu speculates that the timing of this measure may be related to the recent weakness observed in the market.

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