China activates state funds to stabilize stock market

Bloomberg

Tue, May 07, 2019 - Page 10

Chinese state-backed funds were yesterday active in selected stocks, people familiar with the matter said, seeking to cushion the blow from a sudden escalation in trade tensions with the US.

Among the funds’ targets were two large oil companies, the people said, asking not to be named discussing private information.

PetroChina Co (中石油), which fell as much as 3.5 percent in Shanghai, pared losses in afternoon trading to close with a 0.9 percent decline.

China Petroleum & Chemical Corp (中石化) also spiked briefly, though it ended the day down 4.2 percent. Industrial and Commercial Bank of China Ltd (中國工商銀行), the nation’s largest lender, displayed a similar pattern.

State funds stepped in after US President Donald Trump threatened China with steeper tariffs, ramping up tensions in a trade conflict that many investors had hoped was nearing an end.

While the large-cap stock moves helped major equity gauges close off their lows, the Shanghai Composite Index still finished down 5.6 percent, its steepest drop in three years.

Not all investors welcomed such moves.

“The government needs to come up with a basket of solutions to alleviate the market’s key concerns, rather than resorting to a short-term boost to stock prices, which would only prove to be futile and nothing more than a window-dressing act,” said Raymond Chen, a portfolio manager at Keywise Capital Management Beijing Ltd (凱思博投資管理).

Signs of government support also emerged outside the stock market.

At least one big Chinese bank offered to sell the US currency as the onshore yuan fell toward 6.80 per US dollar, according to traders, limiting depreciation in the Chinese currency after it dropped the most in nearly three months.

The China Securities Regulatory Commission did not immediately respond to a faxed request for comment.

While state funds helped ensure a steady bull market in Chinese stocks for much of 2016 and 2017, the government was widely criticized for its botched attempts to end a $5 trillion selloff in mid-2015.

This year, the Shanghai Composite is one of the world’s best-performing benchmark stock indexes. It is up 17 percent even after yesterday’s slide, buoyed by looser credit conditions in China and signs that Asia’s largest economy is stabilizing after a tough last year.