<News Alert> China/HK equity strategy: Thoughts on potential market intervention fund
- Chinese authorities are reported to consider a package of measures to stabilize the stock market, according to Bloomberg. The plans are still subject to change.
- The news echoes Premier Li’s call for “forceful” measures to stabilize market yesterday
- We believe this, if materializes, will be a positive step to mitigate irrational selling pressure. However, sustaining the rebound still hinges on policymakers addressing underlying fundamental issues
- We remain cautious on overall market ahead of Chinese New year as 1) we expect low likelihood of major policy pivot in the near term, 2) corporate earnings may trend down entering result season
What’s New
Chinese authorities are reported to consider a package of measures to stabilize the slumping stock market, according to Bloomberg. Policymakers are seeking to mobilize about RMB2 tn (USD278 bn), mainly from the offshore accounts of Chinese state-owned enterprises, as part of a stabilization fund to buy shares onshore through the stock connect. China Securities Finance or Central Huijin may also deploy at least Rmb300 bn of local fund to stabilize the market. The plans are still subject to change, according to the report. Stock market reacted positively to the news.
Our take
- The speculation about setting up stock market intervention fund has been circulating in the market since 2H23. The news, cited unnamed sources, echoes Premier Li Qiang’s call for “forceful” measures to stabilize the stock market in the State Council meeting yesterday
- We believe this, if materializes, will be a positive step to mitigate irrational selling pressure. However, sustaining a rebound still hinges on policymakers addressing underlying fundamental issues
- As shown in Japan’s experience in stock market intervention in 1960s and 1990s, market intervention alone is unable to offset the negative impact from structural issues in the economy, according to a research paper by SSE
- We believe the news itself benefit 1) stocks with heavy index weighting, such as financials, 2) oversold sectors like retailing, auto, real estate and restaurant on short recovering this week.
- Among 20 YTD worst-performing HSI stocks, Li Auto, Hansoh Parma, Sunny Optical, CSPC Pharma received consensus earnings lift in the past 30 days
- That said, we are cautious on overall market ahead of Chinese New year, because 1) the key to restoring market confidence still rests on a step up in fiscal support, boost confidence among households and in the private economy, which are unlikely to be seen until at earliest in April Politburo meeting, in our view; 2) corporate earnings may be revised down entering result season as the consensus remains too high