China’s state-run funds have stepped in to shore up stock prices amid speculation that the rout in the capital markets has gotten 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, the central bank and the sovereign wealth fund may have participated in the buying, it added.
China’s President Xi Jinping is set to receive a briefing from China’s regulators about the state of the financial markets, Bloomberg reported, citing unidentified people familiar with the matter. The potential meeting, if it takes place, underscores the “urgency in Beijing to prop up the plunging stocks,” according to the report.
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Hong Kong stock market falls below 15,000 level, its lowest in 15 months
Hong Kong stock market falls below 15,000 level, its lowest in 15 months
China’s CSI 300 Index, which tracks 300 of the biggest companies on the Shanghai and Shenzhen bourses, jumped by as much as 3.4 per cent after the report, which has not been confirmed or denied by regulators. The gauge has slumped 38 per cent since January 2021 to hit a five-year low 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 stretch, while another US$2 trillion was erased in Hong Kong, according to Bloomberg data.
“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 stock valuation 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.
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.
“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.”
