China’s sovereign wealth fund, which manages over US$1.35 trillion in assets, has increased its equity stakes in the country’s four largest banks, in a move that has sparked speculation of government intervention to support the domestic stock market and currency.
Central Huijin buys more shares of Big Four lenders
Central Huijin Investment, a subsidiary of China Investment Corporation (CIC), announced on Wednesday that it had acquired additional A shares of Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), Bank of China (BOC) and Agricultural Bank of China (ABC), according to filings with the Shanghai Stock Exchange.
The purchases, which amounted to about 477.5 million yuan (US$65.4 million) based on the closing prices on Wednesday, increased Central Huijin’s shareholding in each bank by 0.01 percentage point. The filings also stated that Central Huijin would continue to buy more shares of the four banks in the next six months.
Central Huijin is a state-owned entity that holds strategic stakes in major financial institutions in China, without interfering in their daily operations. It directly owned equity interests in 17 financial institutions, including banks, securities firms and insurance companies, as of the end of 2021, according to its latest annual report.
The share purchases by Central Huijin are seen as a symbolic gesture by the government to boost market confidence, as China’s stock market has been under pressure amid slowing economic growth, regulatory crackdowns and capital outflows.
China’s stock market and currency face headwinds
China’s stock market has been one of the worst performers in the world this year, with the benchmark CSI 300 Index losing nearly 5 per cent since January. The index fell to its lowest level in more than a year on Tuesday, before rebounding slightly on Wednesday and Thursday.
The market slump has been driven by a combination of factors, including disappointing economic data, tightening liquidity conditions, regulatory clampdowns on various sectors such as technology, education and property, and rising tensions with the US over trade, human rights and security issues.
Meanwhile, China’s currency, the renminbi, has also weakened against the US dollar in recent weeks, as the greenback strengthened on expectations of tapering by the Federal Reserve and higher interest rates. The renminbi fell to its lowest level since April on Wednesday, before recovering some ground on Thursday.
The depreciation of the renminbi has raised concerns about capital flight from China, as investors seek safer and higher-yielding assets abroad. According to data from the State Administration of Foreign Exchange (SAFE), China’s foreign exchange reserves fell by US$21.6 billion in September, the biggest monthly drop since March 2020.
Analysts expect more government support for the market
Analysts said that the share purchases by Central Huijin were reminiscent of its actions during the 2015 stock market crash, when it bought shares of state-owned enterprises and financial institutions to prop up the market.
“This move signifies the government’s desire to maintain market stability,” Redmond Wong, China strategist at Saxo Capital Markets in Hong Kong, said in a note to clients. “This proactive stance is expected to enhance sentiment.”
However, analysts also noted that Central Huijin’s intervention was unlikely to have a significant impact on the market performance or valuation of the banks, as its stake increases were very small and its purchases were made at market prices.
“The impact is more psychological than fundamental,” Hao Hong, head of research at BOCOM International in Hong Kong, said. “The banks are already very cheap and have strong fundamentals. The problem is not with the banks, but with the broader market sentiment.”
Analysts said that more government measures were needed to support the market and the economy, such as monetary easing, fiscal stimulus and policy clarity.
“We expect more policy easing in the coming months to stabilise growth and sentiment,” Ting Lu, chief China economist at Nomura in Hong Kong, said. “We also hope that Beijing will communicate more clearly with the market and ease some of the regulatory uncertainties.”
