China’s State-Backed Funds Plan to Buy Local Stocks to Support Market
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.
Stimulus Measures
China Reform Holdings said it will spend 80 billion yuan (S$14.8 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 and China Chengtong Holdings Group of equity purchases on Monday (Apr 7).
Equity Purchases
A basket of eight exchange-traded funds favoured by the so-called national team saw record net inflow of 42 billion yuan (S$5.7 billion) on Monday, amid Beijing’s coordinated efforts to stem an equities rout. An index of Chinese stocks listed in Hong Kong sank more than 13 per cent on Monday, putting it into a bear market.
Expert Opinion
“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.
Global Market Reaction
US-listed Chinese stocks slid further on Monday after President Donald Trump threatened to slap additional 50 per cent import taxes on China. That followed Beijing’s move to retaliate with tariffs on US goods.
Future Interventions
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.
Central Bank Support
The People’s Bank of China said on Tuesday that it will provide sufficient re-lending support to Central Huijin Investment to maintain smooth operations of capital markets when necessary.
Conclusion
The efforts by China’s state-backed funds to buy local stocks aim to support the market and offset the impact of tariffs. While these measures may provide some short-term relief, it is unclear whether they will be enough to stabilize the market in the long term. As the trade war between the US and China continues to escalate, investors will be closely watching for further interventions by the Chinese authorities.
FAQs
Q: What is China’s plan to support the market?
A: China’s state-backed funds are planning to buy local stocks, including shares in state-owned enterprises and technology firms, as well as exchange-traded funds.
Q: How much will China spend on these measures?
A: China Reform Holdings will spend 80 billion yuan (S$14.8 billion) to increase holdings of shares in state-owned enterprises and technology firms as well as to buy exchange-traded funds.
Q: What is the impact of the trade war on Chinese stocks?
A: The escalating trade war with the US has led to a decline in Chinese stocks, with the index of Chinese stocks listed in Hong Kong sinking more than 13 per cent on Monday, putting it into a bear market.
Q: Will these measures be enough to stabilize the market?
A: It is unclear whether these measures will be enough to stabilize the market in the long term. As the trade war between the US and China continues to escalate, investors will be closely watching for further interventions by the Chinese authorities.
