Market Outlook

China’s $1.2 Trillion Stock Selloff Triggers Media, Fund Support

(Bloomberg) — Chinese stocks extended their nearly $1.2 trillion rout this month even as mutual funds, state media and companies all intensified efforts to support the market.

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At least 15 mutual funds have committed to buying their own equity-focused products in the past couple of days, a move that may have been coordinated. A series of recent articles in state media have touted the attractiveness of Chinese stocks on valuation and policy support, with the Securities Times calling the act of the funds “setting a good example.”

Read More: China State Media Step Up Call for Stock Confidence After Slump

China’s CSI 300 Index fluctuated between losses and gains on Friday, but ended 1.2% lower as traders weighed the impact of the concerted efforts, while also seeking to close positions ahead of a week-long Lunar New Year break. Trading volumes were about 10% below the 30-day average, according to Bloomberg-compiled data. The gauge slipped into a bear market on Thursday.

A growing number of strategists have turned overweight on the nation’s equities this year, citing monetary easing and fewer regulatory concerns. Still, worries over China’s growth and the property market distress are casting doubts over a swift turnaround.

“Confidence and sentiment is dwindling as stocks fall, and when the market is so bearish, we can only count on the momentum to naturally peter out,” said Hou Anyang, fund manager at Frontsea Asset Management. “The skepticism on growth is mainly due to property, there isn’t any industry that can take up its role right now.”

Mutual fund pledges — which were also made during the rout seen early last year and the one at the start of the pandemic selloff in 2020 — have typically helped boost the market. The promised buying this time amounts to at least 1 billion yuan yuan ($157 million).

Still, foreigners continued to offload China’s onshore shares for a second day, selling some 12.5 billion yuan worth of stock. Friday’s decline took losses this year to more than 7.6%, which were also part of a broader, global selloff. Some 72% of companies traded on the CSI 300 are now below the 200-day moving average, the most since April 2020.

Read more: Bear Markets Show Pain Across Asia Equities as Fed Hikes Near

For now, traders have reason to remain cautious. Markets touched multi-year highs ahead of the break last year, only to see a swift tumble when investors returned on concerns about sky-high valuations.

The stakes are also high for the nation’s policy makers, as they seek to avoid market turbulence ahead of the Lunar New Year and the upcoming Winter Olympics.

China’s authorities have taken steps to calm markets in previous routs, using a range of avenues from state-media articles, regulators’ speeches, enlisting help from mutual funds, and in some cases, direct buying through state funds. Earlier this month, China’s securities regulator chief vowed to adopt various measures to stabilize the stock market.

Meanwhile, the Shanghai Securities News on Friday also cited buybacks and increase of shareholding this year by owners at over 70 companies, saying it shows firms are taking “real action to boost morale and confidence”. China Securities Journal added in a front-page article that investors should not be “blinded by the floating clouds” of issues.

(Updates with details throughout)

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