On July 20th, the three major stock indexes in the A-share market once again showed volatile trends. The China Securities Regulatory Commission (CSRC) issued a market support signal, and institutions such as insurance companies, known as the “national team” by the public, also voiced their support for the stock market. Some analysts believe that this time, unlike the market support measures taken after the stock market crash in 2015, the use of new tools this time raises suspicions of benefiting specific interests.
As of the close of trading on July 20th, the Shanghai Composite Index rose by 0.85%, the Shenzhen Component Index fell by 0.71%, and the Growth Enterprise Market Index rose by 0.42%. The total turnover of the market was 2.72 trillion yuan, an increase of 465 billion yuan compared to the previous trading day, with over 3700 stocks declining.
In terms of sectors, the oil and gas, liquor sectors saw significant gains, while the coal, insurance, electricity, engineering machinery, biotechnology, and banking sectors all witnessed increases. On the other hand, electronic components, building materials led the decline, followed by industrial machinery, fine chemicals, semiconductors, basic metals, and chemical raw materials.
On the previous trading day, July 17th, A-shares experienced a sharp decline with over 5000 stocks falling, and nearly 200 stocks hitting their daily downward limits. The Growth Enterprise Market Index and the ChiNext 50 Index plummeted by over 8% during trading, while the Shanghai Composite Index broke below the 3800-point mark, reaching a new low in nearly a year.
Regarding recent market developments, starting from the evening of July 19th, signs of state intervention to stabilize the market became apparent. Two state-owned capital operation platforms directly supervised by the Chinese government’s State-owned Assets Supervision and Administration Commission began market support measures. Guoxin Holdings announced that it had used over 50 billion yuan in stock repurchases to increase lending and provide supporting funds to maintain market stability; China Chengtong also announced that it had accumulated nearly 10 billion yuan in Chinese stock assets purchases. Both entities expressed their commitment to ensuring the stable operation of the capital market.
On the morning of July 20th, several centrally state-owned holding listed companies such as Aluminum Corporation of China, China National Machinery Industry Corporation, State Power Investment Corporation, China Coal Energy, and China General Nuclear Power Corporation, successively issued announcements disclosing shareholder increases or stock repurchase plans.
Chairman Wu Qing of the CSRC visited brokerage firms in Beijing on July 20th and chaired an investor symposium, stating clearly at the meeting that efforts would be made to ensure the stable operation of the market.
On the evening of July 20th, four major listed insurance companies with state-owned backgrounds, including China Ping An Insurance, China Life Insurance, China Pacific Insurance, and New China Life Insurance, collectively announced their commitment to utilizing large-scale funds to act as “truly patient capital in the market” and to continue increasing investment efforts.
In addition, public funds and private funds have also begun using funds to purchase their own products. On July 19th, quant private fund Lingjun Investment announced that the company and its core personnel would use 200 million yuan of their own funds to subscribe to their private equity fund products within two weeks. Similarly, Ping An Investment announced that they would use 100 million yuan of their own funds to subscribe to their products within the following week. On July 20th, Bosera Fund announced that they would use their existing funds totaling 50 million yuan to invest in their public equity funds in the near future.
In the evening of July 20th, dozens of industry-leading companies announced large-scale repurchase programs or disclosed that they had initiated repurchases.
For example, Sany Heavy Industry Co., a large listed company in the construction machinery sector, stated in an announcement that on July 20th, the board of directors received a letter from the company’s chairman, Xiang Wenbo, proposing a plan to repurchase company shares using its own funds or self-raised funds. The total amount for repurchasing shares would not be less than 400 million yuan, nor exceed 800 million yuan.
China issues expert Li Tingqian previously told Dajiyuan that the most critical factor affecting the Chinese stock market is internal factors. “The fundamentals of the economy are deteriorating, almost all industries are facing overcapacity, many traditional industries are experiencing huge losses or declining profits… In this situation, the stock market is unlikely to perform well; what we see is speculation.”
Political observer Xia Yan pointed out the difference between the current official market support measures and those taken after the stock market crash in 2015. In addition to the usual official statements and repurchase measures, a new tool, the “stock repurchase and holding special refinancing” program, was introduced this time to support the market.
The stock repurchase and holding special refinancing tool is a structural monetary policy tool created by the People’s Bank of China. It provides low-cost funds to support listed companies in repurchasing stocks and major shareholders in increasing their holdings to stabilize the capital market.
Xia Yan believes that by using the stock repurchase and holding special refinancing program, Guoxin Holdings under the SASAC appears to be market-driven. However, the nature of its funds and risk control requirements dictate that the funds can only be invested in specific state-owned enterprise stocks that meet the “political security” and standard criteria. Although they may stabilize the index, utilizing low-cost public resources to boost the prices of specific stocks is essentially transferring benefits to specific shareholders (mainly state-owned major shareholders, executives, and institutions). By taking advantage of institutional design for risk-free arbitrage, retail investors are ultimately the ones who suffer the losses.