China’s state-backed funds are planning to buy local stocks in a bid to support the market, as an escalating trade war with the US erodes this year’s rally.
China Reform Holdings Corp. said it will spend 80 billion yuan ($14.78 billion) to increase holdings of shares in state-owned enterprises and technology firms as well as to buy exchange-traded funds. That followed word from sovereign funds Central Huijin Investment Ltd. and China Chengtong Holdings Group of equity purchases Monday.
A basket of eight exchange-traded funds favoured by the so-called national team saw record net inflow of 42 billion yuan Monday, amid Beijing’s coordinated efforts to stem an equities rout. An index of Chinese stocks listed in Hong Kong sank more than 13% on Monday, putting it into a bear market.
“Directly buying the market is one of the ways China can immediately tackle the impact from US tariffs and stabilise sentiment a bit,” said Steven Leung, an executive director at UOB Kay Hian in Hong Kong. “But, they will have to do more stimulus as well,” including rate cuts and fiscal spending.
US-listed Chinese stocks slid further Monday after US President Donald Trump threatened to slap additional 50% import taxes on China. That followed Beijing’s move to retaliate with tariffs on US goods.
See also: China unleashes stimulus as gloves come off in trade war
Chinese officials have been discussing front-loading potential stimulus to offset the impact of tariffs. The market may need to see consistent interventions as the week unfolds if the authorities are determined to stabilise Chinese stocks.
The People’s Bank of China said Tuesday that it will provide sufficient re-lending support to Central Huijin Investment to maintain smooth operations of capital markets when necessary.
Chart: Bloomberg
