China Bailout Fund Said to Sell Bank Stocks as Rally Extends

Updated on
  • Selling seen after benchmark index climbs to seven-month high
  • State-run fund can play stabilizing role, Hengsheng Asset says

Chinese state-backed funds sold bank shares as the nation’s benchmark equity index jumped to a seven-month high earlier this week, according to people with knowledge of the matter. A gauge of financial shares declined.

China Securities Finance Corp. and other government-linked funds sold shares including Bank of Ningbo Co. on Tuesday, according to the people, who asked not to be identified because the information isn’t public. Bank of Ningbo, which had rallied 29 percent over the previous 12 months, dropped 6.8 percent that day. While the people said state funds were net sellers of stocks on Tuesday, it’s unclear how unusual the selling was or whether it continued.

The move by CSF, which was armed with more than $480 billion to prop up share prices during last summer’s rout, may signal confidence among Chinese policy makers that the $6.5 trillion market is growing strong enough to stand on its own. CSF’s biggest holdings at the end of last year were in financial companies, whose heavy weightings in benchmark indexes make them prime candidates for government intervention.

“CSF stepped in to support the market when stocks plunged; it’s now doing the opposite by selling shares when the market surges,” said Dai Ming, a fund manager at Hengsheng Asset Management Co. in Shanghai. “The fund bought a lot of low price-earnings blue chips including banks, insurers and brokerages. The dividend income from these stocks is barely enough to cover funding costs. The A-share market, full of retail investors, tends to overshoot in both directions and CSF can play a stabilizing role."

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A gauge of financial shares dropped 0.2 percent on Thursday, erasing an earlier advance of 1.2 percent. Declines were led by brokerages and smaller banks. China Securities Finance declined to comment, while the China Securities Regulatory Commission didn’t immediately reply to faxed questions.

The Shanghai Composite Index has rebounded 17 percent from a one-year low in January, helped by state purchases, a stabilizing currency, and receding fears of a hard landing for the world’s second-largest economy. The bank stock sales came after the index posted its best two-day gain since March amid surging volumes. The same day, China announced plans to lift restrictions on asset flows via a stock exchange link with Hong Kong, signaling easing concern about the country’s capital outflows.

The financial stock gauge is 28 percent above last August’s nadir. Bank of Ningbo is among the top performers, along with Bank of Nanjing Co, Bank of Beijing Co. and Shanghai Pudong Development Bank Co., all of which have gained more than 45 percent.

"The news is affecting investor sentiment in the short term as they wait to see whether the CSF will further cut its stakes," said Linus Yip, a Hong Kong-based strategist with First Shanghai Securities. "Bank shares have had a good rally recently and investors are taking profit on the news."

— With assistance by Fox Hu, and Steven Yang

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