China intervened on Monday to support domestic stocks plunging on U.S. tariff woes, with a sovereign wealth fund increasing its holdings in equities and saying it would defend market stability.
Central Huijin Investment, a unit of China Investment Corp, said in statement it has added China-listed shares via exchange-traded funds and will continue to increase holdings to "safeguard the smooth operation of the capital market."
The Shanghai Composite Index (.SSEC) lost 7% on Monday in its worst day in five years, reeling after the U.S. imposed extra tariffs of 34% on China last week which then fired back with its own 34% levies. Investors dumped shares across the board, worried about the prospect of an increasingly vicious trade war and a global recession.
But Huijin's statement helped Chinese stocks find a floor with the market recovering from earlier losses of as much as 9%. They have lost 7.6% since Trump's announcement, a much milder decline than the 13% tumble for Japan's Nikkei index (.N225).
Huijin said it is "firmly optimistic about the development prospects of China's capital market and fully recognizes the current investment value of A-shares."
Wen Hao, a stock trader and executive at quant service provider Yingzhiliang Hangzhou Technology, said the market has limited room to fall given the support of the state fund and other likely steps such as monetary easing and measures to spur consumer spending.
But William Xin, chairman of Spring Mountain Pu Jiang Investment Management, said such support would not be enough to offset the impact from a widening trade war, in which "companies are struggling to place orders, set prices, and retain customers."
"Hunting for bargains now is like catching a falling knife, so I would rather hold cash until there's a bit more stability," he said.
Huijin is one of several state-backed "National Team" investors tasked with stabilising the market in times of turbulence. Others include the China Securities Finance Corp and investment vehicles controlled by China's foreign exchange regulator.
Huijin stepped in with stock purchases via ETFs during a market crash in the spring of 2024. It had ETF holdings worth 1 trillion yuan ($137 billion) as of the end of last year, according to Guosen Securities.
Harvest CSI 300 ETF (159919.SZ), ChinaAMC CSI 300 ETF (510330.SS) and E Fund SSE 50 ETF - all ETFs known to be favoured by Huijin - saw trading volumes spike to their highest in a year on Monday.
($1 = 7.3108 Chinese yuan)
