China’s “National Team” Rushes To Save Stocks After Bear Market Signaled

China’s equity benchmark tumbled into a bear market while the yuan plunged the most in seven months following the Federal Reserve’s ultra hawkish comments

On Thursday, the CSI 300 Index sank 2% to the lowest level since September 2020 and officially entered a bear market, which means the main equity index is down more than 20%. 

It was only a matter of time before China’s “National Team” (the local plunge protection team) used political pressure on funds and state media outlets to soothe fears. Local media reported seven of China’s ten largest fund-management companies, including E Fund Management Co. and GF Fund Management Co., were putting money to work and buying stocks, according to WSJ

A day earlier, state-owned Securities Times published a story on the front page that blamed domestic institutional investors for the downdraft in onshore-listed stocks for their short-term investment outlooks. The article called upon the investment community, such as brokerage firms, fund managers, insurers, and other institutions, to “stiffen the spine” and support capital markets amid surging volatility. 

Beijing has often used state media outlets to urge big investors to buy the dip. The verbal intervention shows authorities are concerned about capital markets and are increasing support following a round of central bank easing

The statements this week from China’s National Team were very similar to ones in late July 2021 when Chinese stocks suffered historic losses and Hong Kong’s technology sector imploded. This eventually led to a multi-week rally. 

“Even though domestic A-shares are holding up relatively better than others, investors may be offloading them before the long Chinese New Year holiday taking cues from the Fed-driven volatility,” said Marvin Chen, a strategist at Bloomberg Intelligence.

He expected ample liquidity to return after the holidays. 

So given China’s National Team is working to recover beaten-down stocks, and the People’s Bank of China is easing, the question foreign investors have: is it time to buy the dip? To answer this question is Asia equity strategist at JPMorgan Chase & Co. Mixo Das, who told Bloomberg this week: 

“Within Asia, if you just follow policy, China is definitely the place to be,” Das said, adding the investment bank had upgraded Chinese equities to overweight just weeks ago.