China meddling causes investor concern as markets manage to regain some ground

Billy Bambrough
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The Chinese market has been a roller coaster ride of volatility for months as the government tries to rein in the swings (Source: Getty)

Markets in China have recovered some of their lost ground as the government’s control measures kicked in, furthering concerns that increased Chinese government meddling is creating an artificial market.

State-run Chinese media has reported that a ban on institutional investors selling more than five percent of shares would remain in place indefinitely.

It’s thought the ban could remain in place throughout 2016.

The original six month ban was brought in to help stave off a market crash last summer.

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Alex Dryden, global market strategist at JP Morgan Asset Management, told City A.M.: "t’s tough to judge when the ban could be lifted. It could stay in place for the rest of the year.”

The expected end to the six month ban on Friday sparked a sell off earlier this week as investors rushed to cash in before any large holders could sell.

The government said it will publish new rules on such disposals later in the year.

“They need to have an exit plan,” Dryden added.

The indefinite ban on larger share sales has prompted concerns the market could remain under severe restrictions for a more significant amount of time, potentially preventing larger foreign investment from entering the country.

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Michael Hewson, chief market analyst at CMC Markets told City A.M.: “It’ll be very difficult to remove the controls any time soon and until the government convinces investors their money isn’t going to be interfered with then people should steer clear.”

Depreciation of the Chinese yuan is also causing concern for traders and economists worried that depreciation could mean the economy is weaker than previously thought.

Earlier in the week the People's Bank of China fixed the yuan at a near five year low.

There are worries a fall in value of the yuan could trigger another wave of competitive devaluations in Asia.

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