(South China Morning Post) - China's state-run funds have stepped in to shore up stock prices amid speculation that the rout in the capital markets has got the attention of the nation's top leader, as regulators struggled to overcome "uber-weak" confidence among global investors.
The funds, often dubbed the "National Team," have bought 70 billion yuan (US$9.8 billion) worth of local shares over the past month, according to an estimate by Goldman Sachs. State-owned companies and the central bank are among the likely players, the Wall Street bank said, while the sovereign wealth fund has separately confirmed its action.
President Xi Jinping is set to receive a briefing from China's regulators about the state of the financial markets, Bloomberg reported, citing people it did not identify. The briefing, if it takes place, underscores the "urgency in Beijing to prop up the plunging stocks," it said. The report has not been confirmed or denied.
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As a sign of the urgency, Central Huijin Investment, a unit of the US$1.24 trillion China Investment Corp and a strategic investor in top Chinese banks, said on Tuesday that it had bought more index-linked exchange-traded funds recently to help maintain market stability. It did not disclose the amount involved.
China's CSI 300 Index, which tracks 300 of the biggest companies on the Shanghai and Shenzhen bourses, added to an earlier rally and closed on Tuesday with a 3.5 per cent gain. The Hang Seng China Enterprises Index, which tracks 50 major mainland companies, surged 4.9 per cent, the most since March 2023.
The CSI 300 gauge had slumped 38 per cent since January 2021 after the economy faltered, hitting a five-year low in trading earlier this week, with heightened regulatory scrutiny reviving memories of the US$5 trillion crash in 2015.
China's entire onshore market lost US$3.1 trillion in the latest losing streak, according to Bloomberg data, while another US$2 trillion was erased in Hong Kong.
"Government buying might help circuit-break the downward spiral, but we think reforms, policy consistency, and plans to address structural macro headwinds are required to re-rate China equity," the Wall Street bank said in a report. At least 200 billion yuan, or close to 1 per cent of the market float, may be needed to effectively stabilise the market, it added.
In the 2015 episode, Chinese stocks sank more than 40 per cent between June and August that year, wiping out US$5 trillion of value. The bubble burst after the market regulator cracked down on illegal leveraged trading. A bull market is vital for China's slowing economy because its market capitalisation has slumped to about 54 per cent of national output, from a record 79 per cent in 2021 and 67 per cent in 2015, according to CEIC Data.
This year's slump has similarly galvanised the China Securities Regulatory Commission (CSRC) into overdrive mode. It vowed on Sunday to implement more market stabilisation measures, steady expectations and confidence, and tackle abnormal market fluctuations. It recently hauled up chip developer Beijing Zuojiang Technology for false reporting.
On Tuesday, it banned brokerages from borrowing stocks from institutional holders for short selling purposes, and encouraged listed companies to pursue mergers and acquisitions to boost their market values.
The statement followed measures last month to bar key shareholders from lending their stock to others to short the market, and a fresh warning against frauds. The CSRC has also banned top brokerages from facilitating cross-border derivatives that perpetuated the sell-off, Reuters reported on Monday, citing people it did not identify.
Stocks have weakened amid "chronic disappointment" among global funds. They have pulled a record 201 billion yuan from the A-share market for six straight months up to January.
China has offered drip-feed stimulus with limited efficacy in the face of a multi-year housing market slump and deflation in producer and consumer prices. Geopolitics, domestic politics and deflation are top concerns why China remains uninvestable to many clients at Goldman Sachs.
"Without powerful policy interventions, the deflation expectation may become entrenched and start to hurt consumption and investment demands," according to Gene Ma and Phoebe Feng, analysts at New York-based Institute of International Finance. "Beijing's meddling hands can be error-prone, as shown in the past few years. The confidence of the global and domestic investors remains uber-weak."
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
By South China Morning Post
