For the first time since 2015, Central Huijin Investment Ltd, a state-owned Chinese sovereign wealth fund, boosted its stakes in the country’s biggest banks in an attempt to boost market sentiment. The sovereign fund today bought about $65 million of shares in four of China’s biggest banks, including Industrial & Commercial Bank of China Ltd and Bank of China Ltd, and committed to increase holdings in the banks over the next six months.
Central Huijin Investment Ltd is a sovereign wealth fund with a history of intervening in markets during extreme turbulence. The fund bought stocks during market slumps in 2008 and 2015 in attempts to shore up market confidence. Some analysts are not convinced that the Chinese government's moves to prop up the stock market will succeed. Forsyth Barr Asia Ltd said the move by the Chinese sovereign wealth fund to buy bank stocks may not be the “ultimate game changer, as China macro fundamentals are still the major driver for the bottoming of the stock market in the current environment.”
The Shanghai Composite Index ($CHSC) rose nearly +1% today as financial stocks rallied on the news of state-fund buying of bank stocks. The Chinese government has tried a myriad of support measures to prop up the equity market in recent months. The government has slowed the pace of initial public stock offerings, curbed sales by some top shareholders, cut the stamp tax on stock transactions, and eased rules on margin trading. The Shanghai Composite is little changed this year and has trended lower since posting a 15-month high in May.
Despite the Chinese government's efforts to prop up its equity markets, investor confidence in Chinese stocks remains depressed. Many Chinese economists and hedge funds have called on the government to directly intervene with a stabilization fund to buy stocks, a move that authorities have refrained from since the 2015 stock market crash. The government hopes today’s action to intervene in the equity market will restore confidence. The state-run Shanghai Securities News was quick to talk up the intervention in the market today, saying, “Huijin’s increase in bank holdings sends a clear positive signal and is an important measure to activate the capital market.”
It remains to be seen if the Chinese sovereign wealth fund’s stock purchases will prove to be the catalyst for investors to get back into Chinese stocks. The results of previous government intervention in the equity market have proven to be short-lived. In 2015, when the government stepped in to buy stocks, the Shanghai Composite rallied briefly before falling more than -20% over the following months. Morgan Stanley believes state-sponsored stock buying will not stabilize the market, saying, “Whether the market could be effectively stabilized or reversed into an upward trend is not, in our view, solely dependent on such state purchase actions.”
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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