China’s ‘National Team’ Boosts Stock Market Intervention Amid Sudden Surge in Assets
China’s “national team,” a group of state-run funds, has ramped up its intervention in the stock market following a significant increase in assets at top exchange-traded funds (ETFs). At the end of 2023, the combined net assets of the five ETFs that track the CSI 300 Index and the Shanghai Stock Exchange’s top 50 stocks reached 339 billion yuan. This figure decreased to 194 billion yuan by June 30 and 185 billion yuan by March 31 last year. Managed by E Fund Management, Huatai-PineBridge Asset Management, China Asset Management, and Harvest Fund Management, the nation’s top five ETFs had net assets of US$79.2 billion on February 9.
The surge in assets at these major ETFs is being viewed as a reflection of increased market intervention by the state-run funds, who are known as the “national team.” This intensified intervention comes after a three-year market slump that extended to January this year.
While the state support has not completely reversed the major stock losses, the CSI 300 Index is still slightly below its starting point for the year. Notably, top ETF holdings such as Kweichow Mao-tai, Ping An Insurance, China Merchants Bank, and CATL are trading between 1.2 percent and 31 percent below their June 2023 levels.
Kinger Lau, chief China equity strategist, believes that direct government sponsorship is the most effective way to lift share prices and boost short-term sentiment. However, he also emphasizes the need for more forceful and transparent policy easing and reforms to sustainably re-rate China equities and boost confidence in the private economy.
Lau highlights the macro challenges faced by China, including property, leverage, and the banking system, which are impacting potential growth. Additionally, factors such as an aging population, domestic policy uncertainty, tech restrictions, and geopolitical concerns are affecting portfolio flows and asset valuations.
The weakness in the equity market has raised concerns among policymakers in Beijing. They are increasingly worried about the negative feedback loop between declining investor sentiment and a negative wealth effect on the real economy.
To stabilize index levels, Central Huijin Investment, a unit within China’s sovereign wealth fund, recently pledged to increase its holdings in ETFs and ensure the stable operation of capital markets.
Furthermore, China’s commercial banks have made a 25-basis point cut to the five-year loan prime rate, the largest reduction in the key mortgage rate since at least 2019.
Richard Tang, an Asia equity analyst in Hong Kong, predicts that the “national team” will continue to buy stocks in the near term to establish a floor for index levels. He believes that the market momentum is stabilizing.
Analyst comment
Positive news: The “national team” in China has increased their intervention in the stock market, which is seen as a reflection of increased market support. This comes after a three-year market slump and is expected to stabilize index levels. China’s commercial banks have also made a significant cut to the loan prime rate.
Short analysis: The intervention by the “national team” and the rate cut by commercial banks are likely to stabilize the market in the near term. However, sustained market growth will require more forceful policy support and reforms to address macro challenges and boost confidence in the private economy.
