(Bloomberg) -- How far will China’s leaders go to prevent an equity bubble from forming? It’s becoming a key question for investors as mixed signals produce the wildest market in years.

Traders are hanging on every word out of Beijing for clues on how the government may want to manage this year’s world-beating rally. The new securities regulator chairman -- who has played a leading role in stoking risk appetite -- just downplayed the significance of last week’s rating cut, calling it “very normal” even though the market’s reaction showed otherwise. State-owned media chimed in, saying there’s no need to be concerned over margin trading. That’s after brokerages were instructed to minimize those very risks.

The result is that China’s most speculative stocks keep flipping between massive gains and losses, while insiders have started to cash in. The value of leveraged bets fell Thursday for only the second time since the Lunar New Year break, while daily turnover cooled after frequently exceeding 1 trillion yuan ($149 billion) this month. The ChiNext’s Friday gain means the small cap index is still on track to rise for a sixth straight week, the longest streak since 2015.

Expensive peg

Hong Kong’s currency has hit the weak end of its trading band repeatedly over the past week, spurring intervention that’s cost nearly $700 million. Analysts say the city’s de facto central bank will spend at least another HK$50 billion ($6.4 billion) defending the peg before local borrowing costs move up sharply. The gap between Hong Kong and U.S. borrowing costs remains wide, which means shorting the city’s currency is still a profitable trade.

Pegged to the U.S. dollar since 1983, the Hong Kong dollar was dull for years before it fell to the lower end of its trading band in April last year.

Chart of the week

A bullish sign for Chinese stocks in Hong Kong: the Hang Seng China Enterprises Index formed its first golden cross since 2016, suggesting further gains ahead. Read more here.

Catching up

Here’s what else caught our eye this week:

  • Bond traders battle 1-in-5,500 odds to chase the stock rally.
  • China’s pawn shops may be growing too big.
  • This year’s default scares give bond investors whiplash.
  • UBS fined for mismanaging IPOs in Hong Kong.
  • Co-working spaces get the luxe treatment in Singapore.
  • FTSE Russell is looking at including onshore credit.

--With assistance from April Ma.

To contact the reporter on this story: Sofia Horta e Costa in Hong Kong at shortaecosta@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, David Watkins, Magdalene Fung

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