Here’s What China’s Rescue Fund Is Buying to End the Stocks Rout

Which Direction Is Money Flowing in China, In or Out?

China Securities Finance Corp. has quickly become one of the most influential investors in the Chinese stock market, with $483 billion of firepower and the potential to add $322 billion more.

As a linchpin of the government’s market rescue effort, the agency has almost unmatched ammunition to move mainland share prices. So what exactly is it buying with all that cash?

CSF’s silence on its strategy means the full picture is unclear. The agency is, however, leaving behind a few clues. Thanks to Chinese disclosure rules for large shareholders, exchange filings reveal the stocks in which CSF has built a major stake.

The disclosures show a preference for large-cap companies, and a particular affinity for railway shares. Outside that industry, CSF has positions in health care, food and technology stocks. The agency may also be investing through intermediaries, with the state-run China Securities Journal reporting last week that it plowed the equivalent of $32 billion into mutual funds.

“CSF has become the biggest player in this market,” said Steve Wang, the chief China economist at Reorient Financial Markets Ltd. in Hong Kong. “Investors should follow what the agency has bought, and at least avoid getting on its opposite side by shorting.”

Here’s a look at some of the biggest CSF positions tracked by Bloomberg, all of which the agency has initiated or increased since June 30:

China Railway Group Ltd.

* CSF’s holding: 10.4 billion yuan ($1.7 billion) * Company description: One of China’s largest railway construction contractors * Return since June 30: -2.1% * Price-to-earnings ratio: 28 * Market capitalization: 275.1 billion yuan

China Railway Construction Corp.

* CSF’s holding: 9.1 billion yuan * Company description: Railway construction contractor * Return since June 30: 7.2% * Price-to-earnings ratio: 18 * Market capitalization: 211.7 billion yuan

Inner Mongolia Yili Industrial Group Co.

* CSF’s holding: 4.6 billion yuan * Company description: Producer of milk products * Return since June 30: -7.4% * Price-to-earnings ratio: 25 * Market capitalization: 107.3 billion yuan

TCL Corp.

* CSF’s holding: 2.2 billion yuan * Company description: Maker of electronic appliances * Return since June 30: -7.6% * Price-to-earnings ratio: 16 * Market capitalization: 63.7 billion yuan

Guanghui Energy Co.

* CSF’s holding: 1.9 billion yuan * Company description: Producer of oil, gas and coal * Return since June 30: -18% * Price-to-earnings ratio: 48 * Market capitalization: 44.5 billion yuan

Beijing Sanju Environmental Protection & New Material Co.

* CSF’s holding: 1.4 billion yuan * Company description: Producer of purification chemicals for the energy industry * Return since June 30: 31% * Price-to-earnings ratio: 76 * Market capitalization: 29.2 billion yuan

Humanwell Healthcare Group Co.

* CSF’s holding: 944 million yuan * Company description: Drugmaker * Return since June 30: 2.6% * Price-to-earnings ratio: 40 * Market capitalization: 24.3 billion yuan

Nanjing Gaoke Co.

* CSF’s holding: 788 million yuan * Company description: Investment holding company * Return since June 30: 6.6% * Price-to-earnings ratio: 19 * Market capitalization: 16.1 billion yuan

Shanghai 3F New Materials Co.

* CSF’s holding: 91 million yuan * Company description: Maker of fluorochemical material * Return since June 30: -23% * Price-to-earnings ratio: N/A * Market capitalization: 7 billion yuan

Guangdong Meiyan Jixiang Hydropower Co.

* CSF’s holding: 55 million yuan * Company description: Operates hydropower stations * Return since June 30: -11% * Price-to-earnings ratio: N/A * Market capitalization: 10.6 billion yuan

— With assistance by Zheng Wu, and Fox Hu

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