Shanghai fund manager dumps entire holdings as market goes 'insane'

An investor at a brokerage house in Hangzhou, Zhejiang province, on Jan 7.
An investor at a brokerage house in Hangzhou, Zhejiang province, on Jan 7.PHOTO: REUTERS

SHANGHAI (BLOOMBERG) - A Shanghai fund dumped all its holdings as Chinese shares tumbled and triggered a circuit-breaker that halted trading in the world's second-biggest stock market.

"This is insane," Chen Gang, chief investment officer at Shanghai Heqi Tongyi Asset Management Co., said in an interview on Thursday (Jan 7). "We were forced to liquidate all our holdings this morning."

China's CSI 300 Index plunged 7.2 per cent before trading was halted by automatic circuit breakers for the second time this week, after a weaker-than-estimated yuan fixing fueled concern that slow economic growth is prompting authorities to guide the currency lower. Many private funds and hedge funds in China have agreements with investors spelling out mandatory liquidation levels if their holdings drop below a certain value.

"There'll be a huge test for the market tomorrow when the lockup period on government bailout holdings ends," said Chen, whose firm manages about 300 million yuan (S$65.3 million).

"We won't consider getting back into the market until that overhang is gone and CSRC improves its circuit-breaker system, for instance by extending the 15-minute break to half an hour," he said, referring to the China Securities Regulatory Commission.

Almost 1,300 Chinese hedge funds liquidated amid China's US$5 trillion stock selloff during the summer as the value of their equity holdings fell below mandatory levels agreed with investors, according to Howbuy Investment Management Co.