China market manipulated
By Richard McGregor in Beijing
Published: October 17 2000 20:42GMT | Last Updated: October 18 2000 07:46GMT
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For those of you wondering about the Chinese Funds and how they operate. Seems to be a "clean and open" method for fund managers and their associates to meet each other. ;-)
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China's fledgling fund management industry has been rocked by charges of systematic market manipulation and profiteering contained in a leaked report from the Shanghai Stock Exchange.
The report, published in a financial monthly, Caijing, contains sensational allegations of how fund managers and their associates would meet in secrecy to make illicit deals to boost each other's portfolios.
"It's become a widely know picture - in a stuffy sauna room, negotiators meet naked, with no possibility of a record or disclosure," Caijing reported.
"All the commissions are paid in cash, with no signatures and receipts."
By boosting the value of their portfolios, the fund managers are able to lure more clients and increase their bank borrowings against their equity holdings, according to the report.
The funds also profit by buying and selling each other's holdings, creating the illusion of a high trading volume in particular stocks, which in turn attracts ordinary investors into the equities they hold.
The country's 10 leading fund managers, furious at the report, have issued a strong denial, saying their trading was transparent and protected ordinary investors.
The timing of the report is sensitive, as the government is preparing to give the fund management industry a more influential role in China's stock markets.
Earlier this month the government issued guidelines on the operation of open-ended funds, a new financial instrument in China.
The pending introduction of open-ended funds is designed to boost market liquidity and also trading volumes, to support the government's privatisation of state-owned enterprises.
China's 52m-odd individual investors now dominate the market. The 10 fund management companies have assets of Rmb76.91bn (£6.4bn), only 11 per cent of China's domestic share market.
Three fund management companies were singled out for severe reprimand in the stock exchange report - the Boshi, Nanfang, and Guotai companies. Of the 140 stocks that had allegedly been manipulated, the companies had traded in 51, 48 and 31 of them respectively.
The magazine said the report was based on a monitoring of 22 investment funds run by the 10 fund management companies between August 1999 and April 2000.
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