China’s Wealth Fund Purchases ETF Shares Amid Market Uptick

China’s sovereign wealth fund, Central Huijin Investment Ltd., part of the $1.4 trillion China Investment Corp., broadened its market interventions by purchasing exchange-traded funds (ETFs) on Monday. This move extends beyond its recent bank shares acquisitions, signaling heightened efforts to stimulate the faltering stock market. 

While the exact amount remains undisclosed, Huijin’s acquisition might be around 10 billion yuan ($1.4 billion) in ETFs, primarily those mirroring technology-stock indices. This aligns with regulators’ push for innovation. This purchase follows the sovereign fund’s recent $65 million investment in the country’s leading banks—a move that hasn’t effectively elevated market sentiment. For context, the CSI 300 Index has plummeted 10% this year, reaching its nadir since February 2019. This persistent downturn persists despite multiple governmental interventions.

However, Tuesday witnessed a minor surge, with the benchmark rising by 0.4% after a four-session decline. According to industry experts, Huijin’s strategy of targeting ETFs may yield a more palpable market impact compared to bank share purchases, especially given the tentative economic stabilization. Notably, the Huatai-Pinebridge CSI 300 ETF, prominently held by Huijin, saw its highest turnover in two months on Monday.

This proactive approach reflects leadership concerns about the dwindling market. Reports suggest China might establish a state-endorsed stabilization fund, aiming to fortify its vast $9.5 trillion stock market. Preliminary plans for this intervention, developed in consultation with financial entities, are already with the nation’s highest authorities.

Historically, calls for a governmental stabilization fund have been prevalent, especially after the 2015 market crash. Such a fund could strategically buy and sell stocks, curbing drastic market fluctuations while ensuring profitability.

Past interventions by Huijin in the ETF space, specifically in 2013 and 2015, both resulted in significant stock market gains in subsequent months. Coupled with other policies, such moves have shown promise in enhancing market liquidity and anchoring investor outlooks. Analysts suggest that the current market offers a promising medium-term investment opportunity. They believe this latest intervention could alleviate liquidity concerns and benefit a broader range of stocks than mere bank shares acquisition.

However, amidst these interventions, future growth projections remain modest. Forecasts predict a decline to 3.5% growth by 2030 and a mere 1% by 2050, revised from earlier estimates of 4.3% and 1.6% respectively. In the 2015 downturn, Beijing deployed the China Securities Finance Corp., permitting it access to vast funds to invest directly in stocks and ensure liquidity.