Photographer: Alex Kraus/Bloomberg

China's Government-Backed Funds May Sell Down Big Caps, Deutsche Bank Says

  • State-backed funds have been cutting A-share holdings: DB
  • Bank shares will be the main selling targets, analysts say

China’s government-backed funds may pare investments in companies like Industrial and Commercial Bank of China Ltd. and China Life Insurance Co. after the shares outperformed the benchmark index this year, Deutsche Bank AG said.

The funds, often referred to as the ‘national team,’ tend to be market stabilizers, strategists Yuliang Chang and Joseph Huo wrote in a note dated Tuesday. “They sell outperformers while buying laggards, rather than being relentless buyers that aim to raise equity indices.”

The role of state-backed funds in China’s market landscape became apparent during the 2015 stock rout, when firms like China Securities Finance Corp. and Central Huijin Investment Ltd. worked to counter big equity losses. The funds are also speculated to have been active over the past month, spurring on China’s blue-chip rally following a selloff on concerns about deleveraging. Deutsche Bank isn’t on board with this argument, though, saying the funds instead look to be cutting their exposure to mainland-listed Chinese shares.

The national team likely held an estimated 1.1 trillion yuan ($162 billion) worth of mainland stocks, known as A shares, at the end of the first quarter. That’s 5.4 percent of China’s total free-float market cap, down from 8.1 percent in the third quarter of 2015, the bank said.

Finance stocks dominate the top five on Deutsche Bank’s list of equities that may be sold by the national team.

China Life Insurance -- which has 50 percent of its free float held by state-backed funds, according to Deutsche Bank -- yielded a return of 15 percent this year, compared with the 1 percent offered by the Shanghai Composite Index. ICBC, China’s largest lender by market cap which is 34 percent held by government-backed funds, has jumped 16 percent in 2017. China Shenhua Energy Co., China Construction Bank Corp. and Shenzhen Yan Tian Port Holding Co. rounded out the top 5.

— With assistance by Amanda Wang

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