sovereign fund increases major bank stock holdings to boost markets

context: Domestic stocks have been unable to turn the corner. The CSI 300 Index, which tracks the largest listed firms, has fallen over 10 percent since its January high. A 24 July Politburo meeting focused on the economy led to a short-term rally, but those gains have been wiped away. Though PRC equities markets do not have the same influence on the real economy as in other mature economies, they are still a barometer for overall confidence. Beijing knows healthy capital markets are crucial for channelling more financing to future industries.

Central Huijin Investment, a State Council-controlled SOE sovereign fund, purchased shares in the big four state-owned commercial banks on 11 October, according to official bank statements. The stock purchases were relatively small, totalling C¥477 million in value. The fund says it will continue buying bank shares on secondary markets over the coming six months.

Huijin has a controlling share in all four banks and has previously increased its holdings to support the banking sector, most recently in 2015. Share prices of the four banks increased by over 1.5 percent after markets opened on 12 October. 

With depressed stock prices, Huijin purchasing equities will help bank shares return to normal valuations, argues Wang Qing 王庆 Chongyang Investment Chief Economist. 

Huijin increasing its holdings sends a strong signal that the ‘national team’, state-backed institutions and assets, will support banks and stocks, contends Wang Yifeng 王一峰 Everbright Securities chief financial industry analyst

  • belief that bank shares are undervalued considering high dividends and stable profits
  • props up overall stock market, supporting confidence
  • communicates confidence in the strength of the financial system

A temporary jolt to stock prices does not mean the market has reached its bottom, an unnamed banker told Yicai. Questions remain if large capital holders like insurance companies and wealth management firms will increase their holdings, signalling greater confidence.