increasing calls for a stock stabilisation fund

context: Recent fluctuations in the stock market have been characterised by significant volatility, sharp declines in indices and pervasive investor uncertainty. The Shanghai Composite, China's benchmark index for large state-owned companies and blue-chip stocks, plunged below 2,700 points on 5 February 2024, hitting a five-year low. In response, Beijing has deployed a variety of policy tools to support markets. These measures include mobilising the 'national team' to purchase offshore Chinese shares, providing restructuring support to listed companies and approving its sovereign wealth fund to purchase more exchange-traded funds.

Facing recent stock market woes, there have been increasing calls to establish a stock stabilisation fund worth over C¥10 tn, reports Yicai.

A stock stabilisation fund, also known as an intervention fund, would counteract abrupt fluctuations in the stock market by counter-cyclically purchasing and selling equities.

Injecting capital into the market through measures like a stock stabilisation fund would be an opportunity for Beijing to boost investor confidence, argues Song Qinghui 宋清辉 Qinghui Think Tank founder. By injecting a considerable amount of capital into the market, Beijing can signal to investors its willingness to prevent further decline in the stock market.

Now is the right time to establish a stock stabilisation fund, urges Wu Kaida 吴开达 Topsperity Securities analyst. When the stock market slides for an extended period, investors may want to sell their holdings, leading to further drops in stock prices and instilling fear in more investors. A counter-cyclical measure like injecting capital into the market through the establishment of a stock stabilisation fund is likely to be effective in dire times like these.

Agreeing that now is the suitable time for a stock stabilisation fund, Tao Chuan 陶川 Soochow Securities chief macro analyst emphasises that a stock stabilisation fund is only a transitional measure for extinguishing fires, rather than a long-term solution.