Central Huijin's ETF buys boost China's capital market stabilization

Editor's note: Tian Xuan is the associate dean of the PBS School of Finance at Tsinghua University. The article reflects the author's opinions, and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity. 

Central Huijin Investment Ltd. announced on Monday that it remains confident in the development prospects of China's capital market and fully recognizes the current value of A-shares. The company has once again increased its holdings of exchange-traded funds (ETFs) and will continue to do so, reaffirming its commitment to ensuring the stable operation of the capital market.

Huijin's announcement during trading hours plays a constructive role and carries significant weight in stabilizing market operations.

Firstly, Huijin's increase in holdings sent a clear signal to the market, which eased market panic and restored investor confidence, thus fostering a more rational trading environment and reducing the likelihood of large-scale sell-offs.

Secondly, the entry of "national team" funds helps alleviate liquidity pressures in the market, boost trading volumes and activity, and further support orderly market operations.

Thirdly, by increasing its holdings in ETFs and other financial tools, Huijin can invest indirectly in market indices, optimize its portfolio, and mitigate risks brought about by market volatility. At the same time, it can also prompt other institutional investors to follow suit, creating a market synergy and solidifying the foundation for market stabilization.

From experience, Huijin has repeatedly increased its ETF holdings during periods of market turbulence, and such measures have often helped stabilize market sentiment to some degree in the short term. For example, during the 2008 global financial crisis, Huijin announced it would independently purchase shares of the Industrial and Commercial Bank of China, Bank of China, and China Construction Bank on the secondary market, and the following day, the SSE Composite Index surged 9.46 percent. 

Similarly, in 2018, as the A-share market experienced sharp swings due to the Sino-US trade conflict, Huijin and other "national team" funds made large-scale purchases of blue-chip stocks while the central bank cut the interest rate and the reserve requirement ratio. The SSE Composite Index rebounded from below 2,500 to above 2,700 between mid-October and mid-November that year.

While the actual effects of such actions vary, they consistently serve to lay a foundation for short-term market rebounds, halting declines, and subsequent stabilization.