Chinese Equities Rebound as State Funds Boost Share Purchases, Hopes Rise for Government Support
Chinese equities experienced a much-needed rebound on Tuesday, providing a glimmer of hope for investors who have been grappling with months of sliding prices. The surge in share prices came after state funds pledged to increase their purchases, raising expectations that the government might offer further support to stabilize the market.
Central Huijin, an investment arm of China’s sovereign wealth fund, announced its plans to expand its purchases of exchange-traded funds (ETFs), signaling its commitment to bolstering the market. This news was met with optimism by investors, who have been anxiously awaiting signs of government intervention.
In addition to Central Huijin’s announcement, the China Securities Regulatory Commission (CSRC) stated that it would encourage institutional investors to hold A-shares for a longer period of time. The CSRC’s efforts are aimed at stabilizing the ongoing sell-off, which has wiped out nearly $2 trillion in market capitalization since the market peaked earlier this year.
To further ensure stable stock market operations, the CSRC also vowed to crack down on “malicious” short selling and illegal behavior that hinders market stability. In a separate notice, the commission prohibited securities lending and short selling. Additionally, the CSRC expressed its commitment to closely monitoring the risk of forced liquidations on pledged shares.
The impact of these announcements was immediate, as the onshore benchmark Chinese stock index CSI300 closed 3.2% higher on Tuesday. The broader CSI500 index and its small-cap counterpart CSI1000 index both experienced gains of approximately 7% following Central Huijin’s statement. The Hang Seng index, which tracks Hong Kong-listed companies, also saw a significant increase of 4%, marking its largest rise since July 25. Similarly, the Hang Seng Tech index closed with gains of 6.8%.
The recent sell-off in China’s stock markets has highlighted the lack of confidence surrounding the country’s economic outlook. Weak consumer demand and struggling industrial activity have contributed to this pessimism. Despite previous efforts by Beijing to support the market and implement trading restrictions, Chinese markets have endured a challenging start to the year. Last week, the CSI300 plummeted 4.6% to reach a five-year low.
Retail investors, who had invested in derivatives called “snowballs” tied to small-cap stock indices like the CSI1000, suffered substantial losses during the recent market downturn. The market regulator revealed that over 100 listed companies had injected additional cash or collateral into their margin trading accounts to avoid forced selling of stocks.
“The market grapples with complexity amid a distressed property sector, fiscal constraints of local governments, and a lack of confidence in the private sector,” explained Redmond Wong, chief China strategist at Saxo Markets. These challenges have further eroded confidence in Chinese equities.
Despite the prevailing skepticism, Beijing has taken incremental steps to boost market sentiment. However, it has refrained from implementing significant interventions or stimulus packages. Some experts argue that more dramatic and direct support is needed to restore investor confidence. “The government can’t expect investors to buy in with such wishy-washy measures,” emphasized Wang Qi, chief investment officer for wealth management at UOB Kay Hian in Hong Kong. Wang also warned that the longer the government waits to take decisive action, the higher the cost will be.
Zhang Qi, an analyst with Haitong Securities, echoed this sentiment, stating that investors would require more substantial efforts from Beijing for a sustained market rally. “The key for reviving confidence still lies in the recovery of the economy,” Zhang emphasized. “Investors need to see a rebound in consumption, exports, employment, and incomes. Efforts cannot be limited to statistics bureau reports.”
As Chinese equities experience a much-needed rebound, investors remain cautiously optimistic about the future. The government’s commitment to increasing share purchases and stabilizing the market has provided a glimmer of hope. However, the path to sustained recovery will require further efforts to restore confidence and revive the country’s economy.