The China Briefing

More buyers than sellers

There have been increasing signs of government support for China equities. A big pick up in ETF volumes suggests the “National Team” has started to buy in considerable size.

Please find below our latest thoughts on China:

  • China equities have had an encouraging pre and post-Chinese New Year rally. Since the low point on 5 February, onshore and offshore markets are both up by around 10% (USD). Most of the market losses year to date have now been regained.1
  • Having been hit hardest in the sell-off, small caps have been particularly strong in recent weeks. The ChiNext Index – sometimes referred to as China’s NASDAQ – is up close to 16% since its low point.2
  • There have been several catalysts for the rally which, to use a well-worn phrase, has resulted in more buyers than sellers.
  • In particular, this year’s equity market weakness has resulted in a higher-than-usual level of scrutiny from senior politicians in China. The State Council – equivalent to a government cabinet – held a meeting specifically on capital markets. And the head of the securities regulator was replaced just before markets closed for the Lunar New Year holiday.

Chart 1: China Onshore ETF trading volume (30 day moving average, CNY billion)

Chart 1: China Onshore ETF trading volume (30 day moving average, CNY billion)

Source: Wind, Allianz Global Investors as at 29 February 2024

  • This change led to expectations that further measures will be taken to support the equity markets. In both 2016 and 2019, following periods of market weakness, the appointment of a new chairman of the China Securities Regulatory Commission (CSRC) marked the beginning of a stock market rally.3
  • Indeed, there is strong evidence that the so-called “National Team” – a group of state-owned financial institutions under political direction – has started to buy onshore equities in considerable size.
  • Central Huijin, one of the main “National Team” members, announced on 6 February that it has begun buying exchange-traded funds (ETFs) and would continue to increase the scale of its purchases. Daily trading volume in the larger onshore ETFs has picked up significantly since mid-January.4
  • Additionally, stock buybacks have increased notably. As well as large state-owned enterprises making a series of apparently coordinated buyback announcements, many smaller companies have also bought back stock.5 This potentially signals that valuations have become sufficiently cheap to make buybacks an attractive use of cash.
  • In an average month over the last five years, 121 firms have bought back RMB 8 billion in stock. In February 2024 alone, 669 firms have completed or are implementing buybacks worth RMB 55 billion.6

Chart 2: China Onshore IPO vs share buyback volume (CNY billion)

Chart 2: China Onshore IPO vs share buyback volume (CNY billion)

Source: Wind, Allianz Global Investors as at 29 February 2024

  • As well as an increase in demand for equities, the supply of equity has also reduced.
  • Partly this is related to a managed slowdown in the pace of new IPOs where fundraising has dropped sharply. And the regulator has also introduced restrictions on short selling and securities lending.
  • Selling pressure from brokers covering positions related to “snowball” derivatives has also eased (see China Briefing 8 February 2024). This had been a key factor behind the market weakness earlier this year. After the market fall in January, the AuM of snowball products is estimated to have shrunk by 70-80%.7
  • Looking ahead, attention will turn to the National People’s Congress, part of the annual “Two Sessions”, which kicks off next week.
  • Serving as China’s most important annual political event, thousands of government officials will travel to Beijing where top policymakers will discuss key economic issues. All eyes will be on the 2024 GDP growth target.
  • Beijing, Shanghai and Guangdong have all announced local 2024 targets of “around 5%”. Historically, their GDP targets are broadly in line with the national average.8
  • In the past 15 years, China has missed its GDP target only once. That was in 2022 when zero-Covid was prioritised over economic growth.9
  • Although China achieved 5.2% GDP growth in 2023,10 it will be far more of a challenge to achieve a similar growth rate in 2024. Not only have the year-on-year comparisons become that much higher, the economically important property market also continues to be weak.
  • Anything close to a 5% GDP target for 2024 will, therefore, require a significantly increased level of policy support.
  • So far this year there has already been a cut in the reserve ratio requirement for banks and the 5-year loan prime rate, the reference rate for mortgages. Together with other measures, including moves to ease the funding stress of property developers, this suggests the previous gap that existed between policy rhetoric and policy action appears to be closing.
  • The “Two Sessions”, therefore, is an important test in continuing this momentum and providing greater visibility on China’s macro outlook for the year ahead.

1 Source: Bloomberg, 27 February 2024
2 Source: Bloomberg, 27 February 2024
3 Source: Bloomberg, 8 February 2024
4 Source: Wind, 27 February 2024
5 Source: Gavekal,19 February 2024
6 Source: Gavekal, 19 February 2024
7 Source: HSBC, 20 February 2024
8 Source: Macquarie, 24 January 2024
9 Source: Macquarie, 24 January 2024
10 Source: Macquarie, 24 January 2024

  • Disclaimer
    Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security.

    The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.

    This material has not been reviewed by any regulatory authorities. In mainland China, it is for Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations and is for information purpose only. This document does not constitute a public offer by virtue of Act Number 26.831 of the Argentine Republic and General Resolution No. 622/2013 of the NSC. This communication's sole purpose is to inform and does not under any circumstance constitute promotion or publicity of Allianz Global Investors products and/or services in Colombia or to Colombian residents pursuant to part 4 of Decree 2555 of 2010. This communication does not in any way aim to directly or indirectly initiate the purchase of a product or the provision of a service offered by Allianz Global Investors. Via reception of this document, each resident in Colombia acknowledges and accepts to have contacted Allianz Global Investors via their own initiative and that the communication under no circumstances does not arise from any promotional or marketing activities carried out by Allianz Global Investors. Colombian residents accept that accessing any type of social network page of Allianz Global Investors is done under their own responsibility and initiative and are aware that they may access specific information on the products and services of Allianz Global Investors. This communication is strictly private and confidential and may not be reproduced, except for the case of explicit permission by Allianz Global Investors. This communication does not constitute a public offer of securities in Colombia pursuant to the public offer regulation set forth in Decree 2555 of 2010. This communication and the information provided herein should not be considered a solicitation or an offer by Allianz Global Investors or its affiliates to provide any financial products in Brazil, Panama, Peru, and Uruguay. In Australia, this material is presented by Allianz Global Investors Asia Pacific Limited (“AllianzGI AP”) and is intended for the use of investment consultants and other institutional /professional investors only, and is not directed to the public or individual retail investors. AllianzGI AP is not licensed to provide financial services to retail clients in Australia. AllianzGI AP is exempt from the requirement to hold an Australian Foreign Financial Service License under the Corporations Act 2001 (Cth) pursuant to ASIC Class Order (CO 03/1103) with respect to the provision of financial services to wholesale clients only. AllianzGI AP is licensed and regulated by Hong Kong Securities and Futures Commission under Hong Kong laws, which differ from Australian laws.

    This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG; Allianz Global Investors UK Limited, authorized and regulated by the Financial Conduct Authority; in HK, by Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; in Singapore, by Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; in Japan, by Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424], Member of Japan Investment Advisers Association, the Investment Trust Association, Japan and Type II Financial Instruments Firms Association; in Taiwan, by Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan; and in Indonesia, by PT. Allianz Global Investors Asset Management Indonesia licensed by Indonesia Financial Services Authority (OJK).

    AdMaster: 3420012

Allianz Global Investors

You are leaving this website and being re-directed to the below website. This does not imply any approval or endorsement of the information by Allianz Global Investors Asia Pacific Limited contained in the redirected website nor does Allianz Global Investors Asia Pacific Limited accept any responsibility or liability in connection with this hyperlink and the information contained herein. Please keep in mind that the redirected website may contain funds and strategies not authorized for offering to the public in your jurisdiction. Besides, please also take note on the redirected website’s terms and conditions, privacy and security policies, or other legal information. By clicking “Continue”, you confirm you acknowledge the details mentioned above and would like to continue accessing the redirected website. Please click “Stay here” if you have any concerns.