China’s State Fund Boosts Bank Stock Holdings to Improve Market Sentiment

China's State Fund

Central Huijin Investment Ltd, a Chinese state-owned sovereign wealth fund, has increased its holdings in the country’s largest banks, a move aimed at boosting market sentiment. This marks the first time since 2015 that the sovereign fund has taken such actions. Central Huijin Investment purchased approximately $65 million worth of shares in four major Chinese banks, including Industrial & Commercial Bank of China Ltd and Bank of China Ltd. It has also committed to increasing its holdings in these banks over the next six months.

Central Huijin Investment Ltd has a history of intervening in financial markets during periods of extreme turbulence. The fund previously purchased stocks during market downturns in 2008 and 2015 to help shore up market confidence.

While the move by the Chinese sovereign wealth fund to buy bank stocks has led to a nearly 1% rise in the Shanghai Composite Index ($CHSC) and a rally in financial stocks, some analysts are not entirely convinced of its long-term impact. Forsyth Barr Asia Ltd suggested that this may not be the “ultimate game changer” because China’s macroeconomic fundamentals remain the primary driver for the stock market’s performance in the current environment.

The Chinese government has been implementing various support measures to prop up the equity market in recent months, including slowing the pace of initial public offerings, restricting sales by major shareholders, reducing stamp taxes on stock transactions, and easing margin trading rules. However, despite these efforts, investor confidence in Chinese stocks remains low. Some Chinese economists and hedge funds have called for direct government intervention through a stabilization fund to purchase stocks, a step that authorities have not taken since the 2015 stock market crash. The government hopes that the latest intervention by Central Huijin Investment Ltd will help restore confidence, with state-run Shanghai Securities News describing it as “an important measure to activate the capital market.”

It remains to be seen whether the stock purchases by the Chinese sovereign wealth fund will be a catalyst for investors to re-enter the Chinese stock market. Past government interventions in the equity market have often had short-lived effects. In 2015, when the government stepped in to buy stocks, the Shanghai Composite rallied briefly before declining by more than 20% over the following months. Morgan Stanley has also expressed skepticism, noting that the market’s stability and direction are not solely dependent on state-sponsored stock purchases.

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