China’s ‘national team’ buys US$57 billion of ETFs to buttress flagging stock market, UBS says

Chinese state buyers have bought a net 410 billion yuan (US$57 billion) of exchange-traded funds (ETFs) this year to shore up the nation’s US$9 trillion stock market, according to UBS Group.

Dubbed the “national team” by investors, the state players pumped 311 billion yuan, or 76 per cent of the funds, into ETFs tracking the underlying CSI 300 Index, with the rest funnelled into ETFs linked to CSI’s small-cap gauges, strategists led by Meng Lei said in a report on Tuesday. The Swiss bank came to the conclusion after parsing the daily transactions in 54 ETFs recently, it said.

The report sheds some light on the magnitude of direct state buying that has contributed to a rebound in the CSI 300 from a five-year low. Direct buying is part of the state drive to stem a market rout over the past three years that could jeopardise financial and social stability should sentiment deteriorate further.

The other rescue measures initiated by Beijing include installing a new chief of the securities watchdog, cracking down on quantitative trading by hedge funds and imposing fresh restrictions to curtail short selling.

“As a long-term investor, the ‘national team’ is very unlikely to reduce holdings in the near term,” the UBS report said. There is potential for further buying under extreme conditions, it added.

China’s state funds seen stepping up stock intervention after jump in ETF assets

The latest round of state buying is well below the 1.24 trillion yuan made during the 2015 market meltdown, which works out to 7.7 per cent of the free-float market capitalisation then, the UBS report said.

The market, however, did not stabilise immediately after the state interference in 2015, bottoming out only a year later.

The state buyers in 2015 included Huijin, China Securities Finance, and investment vehicles under the State Administration of Foreign Exchange, according to UBS. Their major holdings were in the financial and industrial sectors, it said.

Improving sentiment has lured some overseas traders back to China’s yuan-traded stocks after six consecutive months of net selling, UBS said.

Foreign hedge funds and long-only funds have boosted equity purchases to 33 billion yuan through the exchange link programme in February, the most since last July, the report said.