China’s state funds buy stocks to stem declines

Chinese state funds weighed in on the stock market on Tuesday, helping the benchmark index recover from its biggest intraday decline since August 2021.

The CSI 300 index closed down 0.6% at the close, paring an earlier drop of 2.4%. State funds entered the market to buy local shares during the afternoon session, according to two people with direct knowledge, who asked not to be identified because the matter was private.

Meanwhile, US-traded Chinese stocks rose in pre-market trading, led by large-cap tech companies including Alibaba Group Holding Ltd. and JD.com Inc..

The measure of state funds was intended to curb the falls, according to one of the sources. Financial stocks, including brokerage houses, were among those bought, the person said. Sub-indices for cyclical sectors, including energy, utilities and financials, rose in Tuesday’s session, although the benchmark closed lower.

The cited sources did not provide information on the amount purchased or the frequency of such purchases. The China Securities Regulatory Commission did not respond to a fax seeking comment.

The support of state funds, known as the “national team” of China, came as mainland China’s benchmark looked poised to erase Monday’s gains, as local markets opened after the weeklong Lunar New Year holiday. The index sank into a bear market before the recess as concerns about the weak economy and housing debt problems outweighed monetary easing from Beijing, and efforts by the securities regulator, state media and mutual funds failed to improve sentiment.

Historically, Beijing has supported the markets when necessary around important events or dates. For example, The funds intervened to stop a market crash during the National People’s Congress in March last year.

Mainland stocks are off to a weak start in 2022 as the monetary policy divergence between Beijing and Washington, seen as one of the main reasons why stockbrokers around the world have turned bullish on equities. Chinese stocks, has yet to translate into significant gains. Even last month’s cut in a key interest rate has failed to excite local traders, with the CSI 300 down 6.7% year-to-date.

The index’s drop early Tuesday was fueled by concerns about consumer spending as economic trends during the holiday break, which are typically a stimulus to spending and travel, disappointed investors. Although the Chinese traveled more compared to last year, the pandemic and restrictions to control outbreaks hurt domestic tourism spending, which fell from an already low level in 2021.

Consumer spending has to pick up for China to start “performing fairly well against the rest of the world,” Sean Taylor, Asia-Pacific chief investment officer at DWS, told Bloomberg Television. For now, people will want to put the Olympics behind them and seek more government guidance on stimulus, he added.