Hong Kong stocks rallied as sentiment improved after China’s securities regulator took additional steps to limit short selling and rein in computer-driven quant trading in a bid to revive investors’ confidence.

The Hang Seng Index rose 1.4 per cent to 17,718.70 as of 11.40am local time. The Hang Seng Tech Index gained 1.9 per cent and the Shanghai Composite Index added 0.8 per cent.

All but seven stocks on the 82-member benchmark rose, with Li Auto jumping 6.6 per cent to HK$82.15 and auto dealer Zhongsheng Group Holdings advancing 4.6 per cent to HK$12.36.

The China Securities Regulatory Commission (CSRC) said on Wednesday night it would raise the margin deposit ratio for short-selling and pledged more scrutiny for quant-based investments. State-backed margin finance company, China Securities Finance also said that it would suspend lending of stocks to brokerages for short selling starting Thursday.

The crackdown came after the rebound in stocks spurred by state intervention began to falter on the back of lacklustre economic data and a slew of corporate profit warnings. The Hang Seng Index has dropped 11 per cent from this year’s highs in May, while the Shanghai Composite has shed more than 6 per cent. Investors have been cautious in the run-up to a Communist Party’s third plenary session due to begin on Monday. The 4-day event will see Party boss Xi Jinping and his colleagues on the Central Committee reviewing and approving the economic and social development policies for the next five to 10 years.

“That’s the counter-cycle measure to stabilise the market and restore investors’ confidence,” said Zhu Lan, an analyst at Shenwan Hongyuan Group in Shanghai.

The move shows reflects the regulator’s intention to boost market stability while promoting fair price formation, according to Ping An Securities.

The margin deposit ratio will rise to 100 per cent of the values of borrowed stocks for short sellers starting Friday, compared with 80 per cent currently, according to the CSRC statement. The ratio for hedge funds will increase to 120 per cent from 100 per cent now, it said.

The CSRC will guide the stock exchanges to work out rules that will define abnormal quant trading and work with Hong Kong to apply the same rules to overseas quant investors that trade through the Stock Connect programme, it said in a separate statement.

Buying interest was also triggered by dovish comments from the Federal Reserve Chair Jerome Powell, who said that US interest rates can be cut even before inflation drops to the target of 2 per cent, in his testimony to lawmakers.

Other major Asian markets all traded higher. Japan’s Nikkei 225 and South Korea’s Kospi both rose 0.8 per cent, while Australia’s S&P/ASX 200 added 0.9 per cent.

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