China’s stock market has performed well so far this year. The Shanghai Composite Index gained 8.3 percent year to date, and the SSE 50 index rallied 18.7 percent to the highest level since July 2015.
As A shares have emerged from the crash of 2015, there have been a lot of discussions about whether state funds, which helped stabilize the market at that time, should gradually leave and let market forces take the lead.
During the 2015 meltdown, the Shanghai market nearly halved in six months, falling from a peak of over 5,000 points in mid June that year to 2,600 points in February 2016.
Failing to shore up the market with positive comments, the government at last resorted to stock purchases.
The state-backed investors led by China Securities Finance Corp. and Central Huijin Investment Ltd., and a dozen Chinese brokerages were summoned to rescue the market.
Eventually, the market stopped bleeding and gradually recovered.
Shares have been going up this year, bolstered by the decision to include A shares in the MSCI index.
Some blue chips like Kweichow Moutai Co. (600519.CN) even rose to a record high.
The state-backed investors, collectively referred to as the national team, have achieved their mission and are actually making good profit.
But instead of gradually exiting the market, they became more active and profit-oriented.
In the second quarter, China Securities Finance increased its holding of brokerage stocks and dumped Xiongan-driven stocks. It also bought a lot of small and mid-cap growth stocks.
Any investor with more than 5 percent stake in a public firm will be required to report to the exchange and issue public statements. The national team usually caps its stake in a public company below 5 percent.
For example, China Securities Finance Co. holds a 4.99 percent stake in six brokerages — Everbright Securities (601788.CN), Orient Securities (600958.CN), Soochow Securities (601555.CN), Industrial Securities (601377.CN), Haitong Securities (600837.CN) and Southwest Securities (600369.CN). And it also has a 4.97 percent stake in CITIC Securities (600030.CN).
As of Aug. 30, China Securities Finance Corp. had a stake in 396 listed companies worth a total of 618.7 billion yuan, according to Wind.
Central Huijin Investment Ltd. holds shares in 960 listed firms, worth up to 396.6 billion yuan.
Individual investors have love-and-hate feelings for them. While it is easy to make quick money by following the national team’s lead and rushing into whatever they buy, when the state funds pull out from certain stocks, their share prices could also fall significantly, leaving individual players trapped.
As the market is back to normal, perhaps state funds should think about an orderly exit.
This article appeared in the Hong Kong Economic Journal on Sept. 1
Translation by Julie Zhu
[Chinese version 中文版]
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