Why were funds told to avoid massive sell-offs?

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Funds Instructed to Avoid Massive Sell-offs to Ensure Market Stability Ahead of the Communist Party Congress

Chinese securities regulators have directed certain fund managers and brokers to refrain from large-scale equity sales in the period leading up to the Communist Party Congress. These instructions aim to prevent significant market volatility and maintain stability during this politically sensitive time. The directives were communicated through informal channels, known as "window guidance," by the Shanghai and Shenzhen Stock Exchanges.
Verbal Guidance Issued to Prevent Market Fluctuations

The instructions to avoid massive equity sales were conveyed verbally by officials at the Shanghai and Shenzhen Stock Exchanges. This method, referred to as "window guidance," involves unofficial policy directives rather than formal written documents. The primary objective of this guidance is to deter abnormal trading activities, specifically large sell-offs and buy-ins, thereby ensuring a stable market environment.
Political Sensitivity Surrounding the Communist Party Congress

The timing of these directives is directly linked to the upcoming 20th National Congress of the Communist Party of China, scheduled to commence on October 16th. This congress is a significant political event, widely expected to confirm President Xi Jinping's third term and involve a reshuffling of key leadership positions within the Politburo. The need to avoid market disruptions is therefore viewed as a matter of political importance.
Previous Commitments to Market Stability

The Shanghai Stock Exchange (SSE) had previously declared its intention to uphold market stability in anticipation of the Party Congress. As early as late July, the SSE stated its commitment to resolutely preventing substantial and rapid fluctuations within the capital markets. This earlier statement underscores a pre-existing focus on maintaining orderly market conditions during this period.
Broader Market Conditions Impacting Investor Sentiment

Investor sentiment has been affected by a confluence of factors leading to a subdued market. China's main stock benchmark, the CSI 300, has experienced a decline of approximately 6 per cent in the current month and over 20 per cent year-to-date. Gloomy economic growth prospects, stemming from recurring Covid-19 outbreaks, challenges in the property sector, and heightened geopolitical tensions, have dampened risk appetite among investors.

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Why were funds told to avoid massive sell-offs?

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