Tsolmon Shar
China approved stock index futures, giving investors a tool to protect against losses and profit from any declines. Until now, Chinese investors could only profit from gains in equities.
Chinese government also approved margin trading and short selling, the China Securities Regulatory Commission said. According to Commission’s statement it may take three months to complete preparations for index futures.
Index futures are essentially agreements to buy or sell an index at a preset value on an agreed date. Investors can also borrow money to buy securities or borrow securities to sell under the business of margin trading and short selling.
“China has opened great opportunities for future investors in the stock market” said Mr. Edward Lehman, managing director of Lehman, Lee & Xu law firm, which is one of the largest commercial law firms in China maintaining offices in Beijing, Shanghai, Shenzhen and Hong Kong.
Analysts expect the new tools to improve liquidity by attracting more capital into the equity market as the government plans to cut back bank lending to 7.5 trillion yuan ($1.1 trillion) in 2010 from last year’s 9.21 trillion yuan.
Index futures are part of China’s push to make more investment options available in the world’s third-biggest stock market by value. China restricts overseas investors to buying B shares that trade in U.S. dollars in Shanghai and Hong Kong dollars in Shenzhen. China’s A shares are mostly limited to local investors. Foreign ownership of fund management companies is restricted to 49 percent.