June 13, 2024

State-backed ‘national team’ of investors piles in to prop China stocks

A rescue operation is underway in China’s equity markets with large and unusual flows into blue-chip funds suggesting a plunge by state-backed investors.

It is unclear exactly who is buying, or whether their pockets are deep enough to turn around the sliding market. But analysts say the purchasing pattern points to the so-called “national team” of state-backed investors, several of whom have said recently they have turned buyers.

The flow

More than $17 billion flowed to four Chinese-domiciled exchange-traded funds tracking the CSI 300 index in the month to January 26, S&P Global Market Intelligence found.

It found only the S&P 500 — a market 18 times larger — has drawn greater inflows, receiving about $20 billion, and that no offshore CSI 300 tracker drew comparably heavy buying.

Goldman Sachs said last week’s domestic ETF inflows were the biggest since 2015. For example, assets under management of the E Fund CSI300 Index ETF jumped more than 70% this month alone to $11.37 billion.

Meanwhile, foreign investors sold 18.2 billion yuan worth of China stocks via the cross-border Connect scheme in January, the sixth consecutive month of net selling.

Signs of state-backed buying are the latest indication of increased official efforts to stem the decline and similar support in 2015 steadied markets — albeit temporarily.

Analysts expect state-sanctioned stock buying can only do so much and fundamental problems such as oversupply and a lack of confidence in property ownership must be rectified to improve things.

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