China sovereign wealth fund buys ETFs in new bid to boost stocks

SHANGHAI – China’s sovereign wealth fund bought exchange-traded funds (ETFs) on Monday, expanding its purchases beyond bank shares as the authorities step up attempts to boost the country’s slumping stock market.

Central Huijin Investment, a unit of the US$1.4 trillion (S$1.9 trillion) wealth fund China Investment Corp that has long served as the main vehicle for China’s holdings in state-run banks, bought an undisclosed amount of ETFs and vowed to keep increasing its holdings, it said in a brief statement late on Monday.

Central Huijin may have purchased 10 billion yuan (S$1.9 billion) in ETFs, the China Fund newspaper reported on Tuesday, citing brokerage estimates. The purchases may be focused on ETFs tracking technology stock indexes, in line with regulators’ support of innovation, it said, citing Huachuang Securities’ analysis.

The move came shortly after the sovereign fund bought about US$65 million (S$88.6 million) of shares in the nation’s biggest banks in October, a symbolic step that has so far failed to boost sentiment. The CSI 300 Index has fallen 10 per cent so far in 2023, closing at the lowest level since February 2019 on Monday, as investors remain worried about growth and the property market crisis even after the government’s rounds of support measures.

The benchmark closed 0.37 per cent higher at 3,487.13 on Tuesday.

Central Huijin’s purchases of ETFs that track indexes can have “more direct, more obvious” effects on the market than buying bank shares, especially as the economy is stabilising, chief economist Li Zhan at China Merchants Fund Management’s research department was cited as saying by the official Shanghai Securities News.

Turnover on the Huatai-Pinebridge CSI 300 ETF, one of the most-held ETF products by Central Huijin, jumped to the highest in two months on Monday, nearly three times its average over the past year.

The sovereign fund’s moves underscore concerns among top leaders over the sinking market. China is considering forming a state-backed stabilisation fund to shore up confidence in its US$9.5 trillion stock market, people familiar with the matter told Bloomberg earlier in October.

There have been growing calls from Chinese economists and hedge funds for the government to directly intervene with a stabilisation fund to buy stocks for the first since the market crashed in 2015. The fund could buy different values of stocks when the index is below certain levels and sell when the gauge rises above designated lines, preventing both excessive declines and overheating while making a profit, Ms Li Bei, founder of Shanghai Banxia Investment Management Centre, wrote in a WeChat article on Oct 10 that was removed the following day.

Good effects

Central Huijin’s two previous publicly announced moves to purchase ETFs, which occurred in June 2013 and July 2015, were both followed by gains of more than 20 per cent in Shanghai stock indexes within three months. This shows that such moves, coupled with other policy measures, can have “relatively good” effects on supporting market liquidity and stabilising investor expectations, according to a China International Capital Corp (CICC) report on Tuesday.

The move not only shows the market now has good investment value for the medium term, but it can also ease broader liquidity conditions and help more stocks than buying bank shares, CICC analysts wrote in the note.

During the 2015 rout, Beijing tapped China Securities Finance Corp as its main stabilisation vehicle by allowing it to access as much as 3 trillion yuan of borrowed funds from sources including the central bank and commercial lenders. The money was used to buy stocks directly and provide liquidity to brokerages. Even so, the turbulence did not end until a year later. BLOOMBERG