China is mounting one of its broadest efforts in years to steady the stock market, with regulators, state-backed investors, insurers and asset managers all moving to shore up confidence after a selloff in tech shares.
The coordinated push shows Beijing’s determination to stop the rout in artificial intelligence and semiconductor stocks from turning into a broader market confidence crisis. Investors have grown wary of lofty chip valuations and a shift of funds toward the upcoming listing of memory-chip maker CXMT.
Over the longer term, keeping AI stocks buoyant could also be a way to help Chinese companies raise the capital needed to compete with the US.
The latest sign of support came on July 20, when the ChinaAMC STAR 50 ETF – the largest fund tracking the chip-heavy index – attracted a record 13.8 billion yuan (S$2.6 billion) of inflows. While the source of the buying wasn’t immediately clear, traders say the scale of the inflows suggested state-backed capital was being directed toward technology shares, where the selloff has been most intense.
The STAR 50 index surged 11 per cent on July 21, its biggest one-day gain in nearly two years. Last week, it tumbled around 17 per cent as investors unwound leveraged positions at the fastest pace since the 2015-16 market crash.
“Investors in AI had been searching for any sign that policymakers were still willing to back the trade,” said Zhuang Jiapeng, fund manager at Shenzhen JM Capital. “The national team’s buying of the STAR 50 ETF provided exactly that signal, prompting funds to wade back in after interpreting the move as an official vote of confidence.”
Support is coming from China’s largest insurers as well, with at least five pledging to boost investments. China Life Insurance said its unit bought more than 10 billion yuan worth of stocks and funds, and vowed to increase holdings of companies in new growth sectors. The People’s Insurance Company (Group) of China and Ping An Insurance Group made similar commitments.
Together, the moves suggest authorities are deploying a broader arsenal to stabilise tech shares. Chinese equities have been dragged lower as turbulence in memory-chip stocks spilled into the wider market, prompting policymakers to shore up one of the most important growth sectors as the economy falters.
If confirmed, the national team’s buying in the STAR 50 ETF would mark a shift from earlier stabilisation efforts that focused on blue chips. Turnover jumped in other exchange-traded funds favored by state-backed investors – including the Huatai-PineBridge CSI 300 ETF – though its 12.6 billion yuan of inflows on July 20 trailed the STAR 50 ETF.
Other Chinese stock gauges also rallied on July 21 in an early sign that state support is bolstering sentiment. The tech-focused ChiNext Index gained 7.1 per cent, while the benchmark CSI 300 Index ended 3.1 per cent higher.
Other backers
State-backed asset managers have signaled support. Bosera Fund Management said it would invest 50 million yuan of proprietary funds into equity products it manages. Such purchases are typically made during periods of acute market stress.
In a rare move, brokerage GF Securities – which has historical ties to provincial governments – is raising its margin financing quota by 90 billion yuan, offering investors greater access to liquidity as leverage is being unwound.
Regulators have met with investors in a bid to revive confidence. The China Securities Regulatory Commission gathered their views on promoting the stable and healthy development of capital markets, and vowed efforts to prevent risks, improve investor protection and enhance returns.
China’s national team has a history of using ETFs to stabilise equities during bouts of volatility, and has been active since last week’s selloff. Beijing still has ample firepower after the national team slashed ETF holdings earlier this year, leaving room to ramp up purchases if needed.
Some traders say the intervention may help slow the selloff, but is unlikely to reverse sentiment on its own.
“The national team is clearly intent on slowing the pace of losses and cushioning the decline in technology shares, where positioning had become especially crowded,” said Wang Zhuo, a fund manager at Shanghai Zhuozhu Investment Management Co. “Ultimately, the only real solution is for the market to return to more reasonable valuations.” BLOOMBERG
