China’s biggest ETFs see huge inflows in latest sign of state buying amid third plenum

Rising inflows into CSI 300-linked ETFs have fanned speculation that China’s state buyers are probably trying to prop up sentiment, analysts say

China stock market

Zhang Shidongin Shanghai

Published: 7:30am, 18 Jul 2024

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The biggest exchange-traded funds (ETFs) tracking a key Chinese stock benchmark have seen spikes in inflows, indicating that state-backed buying could be steadying market sentiment amid a key meeting of the Communist Party.

The ETFs linked to the underlying CSI 300 Index managed by Huatai-PineBridge Investments, E Fund Management, and China Asset Management have all seen above average daily fund flows this week, according to Bloomberg data.

Huatai-PineBridge CSI 300 EFT, the biggest such product with 195.2 billion yuan (US$26.9 billion) of assets, logged 2.9 billion yuan of inflows on Tuesday after 1.1 billion yuan was ploughed in a day earlier, the data showed. The average daily inflow for the year stands at 712 million yuan.

The growing interest in the CSI 300 ETFs has fanned speculation that China’s state buyers, led by Central Huijin Investment, are probably behind the jump in daily inflows in an attempt to prop up sentiment. This comes as the Communist Party’s Central Committee is holding its third plenum in Beijing. The social and economic development plans for the next five to 10 years will be unveiled at the plenum’s conclusion on Thursday.

“There’s a big chance that the state is behind the increased buying of the ETFs,” said Dai Ming, a fund manager at Huichen Asset Management in Shanghai. “They are buying ETFs mainly to put a floor under the CSI 300 Index, which has a big sway over the broader market. That’s a good tactic to stabilise the market.”

China’s state buyers have a tradition of intervening in the stock market during major political events, such as the National People’s Congress and the Communist Party Congress, to create a favourable sentiment among investors. The prevention of systemic risks to the financial markets has been singled out as one of the top priorities of regulators this year.

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Daily inflows into the E Fund CSI 300 ETF reached 3.02 billion yuan on Tuesday and 1.03 billion yuan on Monday, higher than the year’s average of 739 billion yuan, according to Bloomberg data. Another ETF managed by China Asset Management saw inflows of 2.5 billion yuan and 792 million yuan over the past two days, compared with the daily average of 940 million yuan this year, the data showed.

The CSI 300 Index, which comprises the 300 most valuable and liquid stocks on the Shanghai and Shenzhen exchanges, has risen by 0.8 per cent this week, showing a tentative stabilisation after having fallen almost 6 per cent from a high in May up to last week.

State buying played a key role in stemming an unrelenting decline in stocks earlier this year, when the CSI 300 dropped to a five-year low. Central Huijin, a unit of sovereign wealth fund China Investment Corp, said that it bought ETFs and shares of the big four state-owned banks, while China Reform Holdings, a state-backed investment holding company, also said that it bought ETFs tracking state-owned tech companies and high-dividend stocks trading in Hong Kong.

State buyers, also called the national team by individual investors and the media, were estimated to have stock holdings worth at least 3.1 trillion yuan at the end of the first quarter, or 5 per cent of the total onshore market capitalisation, according to Huatai Securities.

“Judging by the fund inflows into the big-cap index ETFs, money from the national team continues to flow in,” said Wang Yi, an analyst at Great Wall Securities. “That may improve the liquidity and bolster market sentiment to some extent.”

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