China State Fund Buys Bank Shares, Fueling Rescue Hopes

China’s sovereign wealth fund increased its stake in the nation’s biggest banks for the first time since 2015, stoking speculation authorities will intensify efforts to prop up the sinking stock market.

(Bloomberg) — China’s sovereign wealth fund increased its stake in the nation’s biggest banks for the first time since 2015, stoking speculation authorities will intensify efforts to prop up the sinking stock market.

State-owned Central Huijin Investment Ltd. bought about $65 million of shares in Bank of China Ltd., Agricultural Bank of China Ltd., China Construction Bank Corp. and Industrial and Commercial Bank of China Ltd., according to filings Wednesday. Huijin, a unit of the $1.4 trillion China Investment Corp., plans to further increase holdings over the next six months, the filings show. 

The CSI 300 Index rose 0.7% at 10:05 a.m. on Thursday, led by financial shares.

A growing number of Chinese economists and hedge funds are calling on the government to directly intervene with a stabilization fund to buy stocks, a move the authorities have refrained from since the 2015 market crash. Concerns are mounting among China’s top leadership over the trajectory of the world’s second-largest economy as a deepening property crisis and deflationary pressures put the growth goal of around 5% for the year at risk.

Read more: China Mulls New Stimulus, Higher Deficit to Meet Growth Goal

Previous measures by authorities to bolster the $9.5 trillion domestic equity market failed to halt the rout. The CSI 300 fell to an 11-month low on Tuesday, taking losses since its 2021 high to 37%. In recent months, officials have slowed the pace of initial public offerings, curbed sales by some top shareholders, cut the stamp duty on stock transactions and eased rules on margin trading.

While the equity purchases by Huijin are small, they mirror efforts made during a stock market crash eight years ago to put a floor under stock prices and minimize panic selling. To reinforce the point, Huijin’s intervention was splashed on Thursday across the front pages of China’s top financial newspapers, which said the move would boost investor confidence.

“Central Huijin’s modest yet symbolic investments are very likely aimed at supporting share prices,” Redmond Wong, a market strategist at Saxo Capital Markets in Hong Kong, wrote in a note. “This move, reminiscent of its actions during the 2015 Chinese equity market turmoil, signifies the government’s desire to maintain market stability.”

The CSI 300 Financials Index rose 1.2%. China Construction Bank advanced 2.2%, while ICBC climbed 1.9%. Central Huijin holds stakes in 19 financial institutions including banks and brokerages, according to its website.

Chinese government bonds dropped, with the yield on 10-year sovereign debt rising 2 basis points to 2.71%, set for the highest closing level since May.

The sovereign wealth fund has a history of intervening during times of extreme turbulence, buying stocks after bubbles burst in 2008 and 2015. This time around, the concern among investors isn’t sky high valuations but whether the government will do enough to support the economy. That means stock market interventions may have a limited impact.

“The purchase of big four bank shares by Huijin feels like déjà vu and reminds people of the old playbook to save the market by regulators back in 2008 and 2015,” said Willer Chen, senior research analyst at Forsyth Barr Asia Ltd., adding that the move may not be the “ultimate game changer.” 

“China macro fundamentals are still the major driver for the bottoming of the stock market in the current environment,” Chen said. 

History shows some previous interventions only provided short-term relief. In 2015, the CSI 300 rallied briefly before falling more than 20% over the following months.

Chinese bank stocks, which typically trade at low valuations due to being state-owned, are especially cheap after the rout. ICBC’s Hong Kong shares trade at 0.4 times book value, close to the lowest on record, while the share price is less than 30% above the 2006 IPO price. 

That means Huijin is unlikely to lose money, said Hao Hong, chief economist at Grow Investment Group.

“Bank shares are trading close to their all time low in terms of price and valuation, with a very good dividend yield of 10%,” he said. “For a market now with a very low interest rate and 10-year Chinese government bonds yielding less than 3%, even for a trade there should be profit.”

China’s move comes amid mounting pessimism among foreign investors toward the country’s companies. New emerging-market mandates that exclude China stocks have reached a record this year and global funds have cut their positioning in the country to the lowest since 2020. The MSCI China Index, dominated by offshore-traded stocks, has fallen more than 7% this year, compared with an 10% gain by MSCI Inc.’s global gauge.

“What the market is in desperate want of now is a fresh source of funds,” said Li Fuwen, fund manager at Guangdong Value Forest Private Securities Investment Management. 

–With assistance from Zheng Li, Wenjin Lv, Ishika Mookerjee, Zhu Lin, Charlie Zhu, George Lei and Winnie Hsu.

(Updates to add market trading in third paragraph, details throughout)

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