China stocks pare slide as state funds seen buying large caps

The losses were triggered by the S&P 500 Index suffering its worst final session before the Christmas holiday on record.
The losses were triggered by the S&P 500 Index suffering its worst final session before the Christmas holiday on record.PHOTO: REUTERS

SHANGHAI (BLOOMBERG) - China stocks pared a sharp drop as state-backed funds were seen buying large caps in the afternoon on Tuesday (Dec 25).

The SSE 50 Index of some of the country's largest stocks fell 0.5 per cent at the close, paring an earlier slide of 2.3 per cent. Financial shares eked out gains. The Shanghai Composite Index fell 2.5 per cent in the morning before paring the loss to 0.9 per cent. Hong Kong's equities market was closed for the holiday.

Chinese shares slid in the morning along with equities in Japan, where the Nikkei 225 Stock Average fell into a bear market. The losses were triggered by the S&P 500 Index suffering its worst final session before the Christmas holiday on record.

"The gains by big banks and insurers suggest state buying, and some funds may also be bottom-fishing stocks," said Dai Ming, a Shanghai-based fund manager with Hengsheng Asset Management Co.

Kang Chongli, a Beijing-based strategist with Lianxun Securities Co., said the 2,500 level "is both a policy and technical bottom" for the Shanghai Composite Index. The gauge ended the day at 2,504.82.

China's "national team" of state-backed funds is frequently suspected of buying shares during turbulent times. Large caps like banks are among the most favoured targets, and buying often comes in the afternoon so gains, or at least smaller losses, are locked in for the day. The funds were net buyers of bank stocks in the third quarter, UBS Securities Co. said in November.

China's stock benchmark is down 24 per cent this year, in line for the worst performance in a decade, as a trade dispute with the United States escalated.

Agricultural Bank of China Ltd. added 0.9 per cent on Tuesday, erasing a drop of 0.6 per cent. Bank of China Ltd. rose 0.6 per cent, and Bank of Communications Co. rose 0.4 per cent. China Southern Airlines Co. rose 1.9 per cent as the best performer on the SSE 50 measure, erasing a slide of 1 per cent in the morning.

A subgauge of energy stocks was the worst performer among the CSI 300 Index's 10 industry groups, falling 2.1 per cent as crude fell to the lowest level in a year and a half. China Petroleum & Chemical Corp. and PetroChina Co. lost at least 2 per cent.