China Stock Volatility Sinks as State Funds Seen Curbing Moves

  • Government funds making it difficult to play market: Jingxi
  • Infrastructure shares gain on plans to raise fiscal spending

A gauge of volatility in Chinese stocks fell to the lowest in two years amid concern state-backed funds are smothering market moves.

The Shanghai Composite Index, which has moved less than 1 percent on a daily closing basis in the past three weeks, climbed less than 0.1 percent to stay around the 3,000 level. The measure’s 30-day volatility dropped to the least since August 2014. Infrastructure stocks climbed after the State Council said it will ease restrictions on spending in the sector. Hong Kong stocks fell from a one-year high.

The feeble moves in mainland equities come amid increasing speculation of state intervention, with the Communist Party’s top decision-making body pledging to curb asset bubbles and the central bank saying it wants to reduce leverage in financial markets. State-backed funds were seen selling bank shares in mid-August as the Shanghai Composite surged to a seven-month high, while Huaxi Securities Co. said the government probably wants to keep the market above the 3,000 level.

“The ‘national team’ is very deeply involved, and its main purpose is to prevent the market from moving up or down too extremely,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co. “It’s also unjustified for them to push up the market at this moment as the economy is still sluggish. It’s becoming difficult for us to play in the market now.”

State-backed funds hold an estimated 1.2 trillion yuan ($180 billion) of stocks, about half the size of the nation’s equity-focused mutual funds, according to Howbuy, a Shanghai-based fund tracker. Policy makers moved to strengthen control of equity markets after last summer’s rout, arming China Securities Finance Corp. with more than $480 billion. 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.

The Shanghai Composite closed at 3,091.93. In Hong Kong, the Hang Seng Index slipped 0.2 percent, while the Hang Seng China Enterprises Index climbed 0.3 percent, extending its two-month advance to 16 percent.

There’s still time to buy into the H-share bull run, according to Adrian Mowat, the chief Asian and emerging-market equity strategist at JPMorgan Chase & Co. He predicts the index will climb further by the end of the year, given better-than-estimated corporate profits.

Fiscal Boost

In Shanghai, China Gezhouba Group Co. gained 2.4 percent and Shanghai Tunnel Engineering Co. advanced 5.5 percent after the State Council’s statement. Power Construction Corp. of China rose 1.1 percent.

Restrictions on infrastructure spending will be eased and equal access granted to private investors in sectors such as education and medical care, according to a statement released on the State Council’s website Tuesday. Policy banks will be encouraged to increase credit support to investment projects, and state-owned enterprises are being asked to step up investment in rural grid and telecommunication projects, according to the statement that cited a meeting chaired by Premier Li Keqiang.

China is scheduled to release a set of August economic data this week, with foreign trade due on Thursday and inflation the following day. An official factory gauge published last week showed manufacturing unexpectedly rose to the highest level in almost two years in August.

— With assistance by Shidong Zhang

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