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Business / Markets

Detention of fund manager roils investment sector

By Li Xiang (China Daily) Updated: 2015-11-03 07:32

The detention of a high-profile Chinese fund manager stirred the country's equities investment sector on Monday, underscoring the intensified government crackdown on illegal activities in the volatile Chinese stock market.

Xu Xiang, general manager of the Shanghai-based private equities firm Zexi Investment, has been detained and is being investigated by the police on suspicion of insider trading and market manipulation, Xinhua News Agency reported, citing the Ministry of Public Security.

Xu's detention came as the country's securities watchdog stepped up the effort to eradicate illegal trading after the stock market experienced a dramatic fall that wiped out $5 trillion in market value during the summer.

Market observers said that the case could herald a fresh round of crackdowns on financial crimes as the country's top anti-graft agency, the Communist Party's Central Commission for Discipline Inspection, turns its attention to the financial industry by carrying out inspections of possible mis-conduct and corruption in major financial institutions as well as in the securities regulator.

Xu, at the age of 37, was considered a legendary investment figure on the Chinese stock market, since his firm managed to repeatedly outperform the market with investment returns exceeding 300 percent-even when the market suffered sharp declines.

With only a high school education, Xu began to trade stocks at the age of 17. Nicknamed one of the "dare-to-die" traders, Xu was known for his aggressive investment strategies, and he soon rose to become a star fund manager due to his market-beating performance.

The value of assets under his management had exceeded 10 billion yuan ($1.58 billion), and the stocks he invested were chased by many retail investors.

On Monday, news about Xu being investigated set the Chinese investment circle abuzz, and a photo of Xu wearing handcuffs went viral on the Internet, although details of the investigation were limited.

Phone calls to Zexi Investment were not answered. Stocks that are part of Xu's investment portfolio suffered heavy losses on Monday as investors rushed to dump the risky assets.

"Professionally speaking, the performance of Xu's fund almost looked like a myth to me ... and it is not surprising that he became a target of the regulator," said a fund manager in Beijing who requested anonymity.

In a separate probe, police arrested several executives of Yishidun International Trade Co, registered in Jiangsu province, and Shenzhen-based futures brokerage China Fortune Futures, Xinhua reported, also citing the Ministry of Public Security. They are suspected of manipulating the stock index futures market by using a high-frequency trading strategy and reaping illegal profits of more than 2 billion yuan, according to Xinhua.

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