On the evening of October 23, Huijin Company publicly announced its purchase of Exchange-Traded Funds (ETFs). The move significantly influenced the market, leading to all major indices turning positive on October 24. Not only did the Wind A-share index rise, but the CSI 500, CSI 1000, and the STAR 50 also saw increases exceeding 1%.

Market analysts have deduced that the cumulative net inflow of funds during this period, particularly following the rapid expansion in trading volume of relevant ETFs at the end of October 23, could suggest that Huijin purchased a substantial amount of close to RMB 10 billionThis influx of capital is expected to alleviate the ongoing liquidity crunch in the market and could signal the beginnings of an upward trend for both exchanges.

Reporting from Securities China indicated that the three ETFs with the highest increase in shares on October 23 were the Huaxia Shanghai Stock Exchange STAR Market 50 ETF, the Huatai-PB CSI 300 ETF, and the Hua Bao CSI Medical ETF

If we focus on the more than ten ETFs that recorded a single-day share increase exceeding 100 million, the total net inflow on that day reached RMB 7.542 billion, with particularly significant investments observed in the STAR 50, CSI 300, and GEM 50 ETFs.

On October 24, statistics revealed that several leading financial companies, including Huatai-PB and Huaxia, recorded significant trading volumes in 11 different broad-based ETFs, all exceeding RMB 1 billion, hinting at substantial capital inflow.

It is worth noting that this represents Huijin's second intervention this month, following the increase in holdings of the big four banks that was announced on October 11. Historically, Huijin has repeatedly intervened to purchase index ETFs during periods of extreme market downturns, notably in 2013 and 2015. Analysts interpret these actions as government measures to stabilize the capital markets, and they may indicate the market is likely in a bottoming phase, which could help reverse negative market sentiment.

The 11 broad-based ETFs achieved more than 10 billion RMB in single-day transactions.

Even though Huijin has not disclosed the specific ETFs it has purchased, financial institutions have made reasonable assumptions based on the trading volume's fluctuations as a guide for investment decisions

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For instance, Huaxia Fund expressed that given the recent shifts in the ETF market and the drastic surge in volumes seen at the close of October 23, the market could estimate Huijin's investments on that date to be near RMB 10 billionThis would provide much-needed liquidity to the market, benefitting both exchanges.

Scoring through Wind's data, on October 23, the ETFs with the largest share increases were the Huaxia SHCOMP STAR Market 50 ETF, which increased by 1.188 billion shares with a net inflow of RMB 1.057 billion; followed closely by the Huatai-PB CSI 300 ETF, which saw an impressive 987 million share increase and attracted a net inflow of a staggering RMB 3.494 billion, making it the top product for net inflows that day; the Hua Bao CSI Medical ETF came next with 574 million shares added and RMB 226 million net inflowOut of the more than ten ETFs that saw single-day share growth exceeding 100 million, the overall net inflow was RMB 7.542 billion

It is evident that the STAR 50, CSI 300, and GEM 50 index ETFs led the charge in net buy volume.

When tracking index performance, it becomes clear that the CSI 300 and STAR Market 50 ETFs emerged as the main beneficiaries of capital inflows, with total inflows reaching RMB 5.88 billion on October 23 aloneNotably, the Huaxia STAR Market 50 ETF and Huatai-PB CSI 300 ETF alone accounted for over RMB 4.55 billion in net inflowsThe figures demonstrate that during the trading hours at the end of October 23, numerous broad-based ETFs saw a significant surge in trading volumesSpecifically, between 14:30 and 15:00 that day, the Huatai-PB CSI 300 ETF's trading volume reached RMB 5.682 billion, culminating in a total of RMB 9.592 billion for the day, comprising over 40% of its total trading volume for the entire previous week (RMB 22.853 billion). Other noteworthy ETFs included the Huaxia STAR Market 50 ETF, Huaxia SSE 50 ETF, and Southward CSI 500 ETF, achieving daily trading volumes of RMB 3.621 billion, RMB 2.862 billion, and RMB 2.73 billion respectively.

After this substantial buying action on the previous day, another significant influx was observed on October 24. By the market's close that day, 11 different broad-based ETFs managed by companies like Huatai-PB, Huaxia, Southward, and Fund E all recorded daily transaction amounts exceeding RMB 1 billion

Among them, the Huatai-PB CSI 300 ETF, Southward CSI 500 ETF, and Huaxia STAR Market 50 ETF each surpassed RMB 3 billion in trading volume.

Importantly, Huijin Company is a significant shareholder in numerous broad-based ETFs, as of the end of the second quarter in 2023. Huijin is the largest shareholder of the Huaxia SSE 50 ETF and Southward CSI 500 ETF, and ranks third for the E Fund CSI 300 ETF.

While ETFs track indices, the indices encompass a wide range of underlying assetsNotably, the leading indices in terms of capital inflow include the CSI 300 index, which features dominant stocks from various sectors, such as Kweichow Moutai, Ningde Times, Ping An Insurance, China Merchants Bank, and Wuliangye from finance, consumer goods, pharmaceuticals, electronics, and moreThe STAR Market 50 index comprises 50 innovative technology firms, including names like SMIC, Kingsoft Office, and Tongwei Solar, snagging investor interest in sectors like information technology, high-end equipment, new materials, renewable energy, energy conservation, and biomedicine.

Analysis shows that 15 stocks overlap among the constituents of these two indices, including SMIC, Kingsoft Office, Tongwei Solar, and many others.

Huijin's historical interventions during critical periods

Bosera Fund commented on Huijin Company's actions, emphasizing their role as a member of the “national team,” reiterating that this marks the second intervention in the month aimed at restoring confidence in the markets

Previously, on the evening of October 11, the big four banks collectively announced Huijin’s acquisition of their shares, estimated around RMB 480 million.

Huaxia Fund pointed out that historically, Huijin's purchases of index ETFs have occurred twice, specifically during the financial crisis in June 2013 and the market crash in July 2015. While their infrequency lacks statistical significance, they predominantly appear during extreme downturns related to liquidity risks, representing measures to stabilize the national capital marketGenerally, such actions indicate we might be in a bottoming phase that could potentially alter market expectations.

Specifically in June 2013, the market had been declining continuously for over two years amidst a severe liquidity crisis, with interbank lending rates skyrocketing to annualized rates of 30%. Investors were selling into the A-share market, leading to rapid declines

Huijin's intervention came at a crucial moment to stabilize the marketSubsequent analysis revealed that this timing coincided with a historical low, propelling the market into a bull run thereafterConversely, in 2015, the market was characterized by crises from leveraged investments, experiencing a short-term liquidity crisis that saw stocks plummetHuijin similarly intervened, but as the downward trend had just begun, many stocks remained overvalued thereafter.

“Thus, reflecting back on Huijin's involvement, a phase of losses was expected, yet fundamentally it was still in the bottoming phaseSubsequently, the market recognized a shift in investment styles, and many core assets began a prolonged bull market, with the current scenario resembling either a repetition of prior situations or something in between,” Huaxia Fund asserted.

Positive signals emerge

"Historically, whenever Huijin publicly announces ETF purchases, though the immediate market response may be mixed, the positive sentiments they imbue are invariably clear and contribute to mending market morale," noted Bosera Fund, emphasizing the tone of stability emanating from policymakers during recent adjustments has shown risk mitigations, with several key indices now priced at their historical lows, limiting the potential for further declines in A-shares

Meanwhile, markets are expected to continue to experience fluctuations in the near term.

"From a macroeconomic perspective, the trends regarding the overall economic health and corporate profitability are displaying gradual improvements, reasserted by fluctuating dataUnder the banner of policy support, the Chinese economy is anticipated to continue its recoveryEvaluating both market capitalizations and recovery trajectories, caution regarding future prospects may not be necessary, suggesting that patience may yield positive outcomes in stabilizing the market," Bosera Fund contended.

According to Wei Fengchun, chief economist at Chuangjin Hexin Fund, Huijin's timely interventions represent the proactive measures required to restore essential market functions during periods of disarray

They act as risk mitigators on a larger scaleUnlike merely trading bank stocks, which presents a minor structural adjustment to the risk, ETF purchases constitute a broader protective strategy"For the market to regain its vitality, proactive intervention is crucial; while Huijin's share augmenting is akin to emergency measures, the genuine revitalization of the capital market necessitates ongoing refinements at the investment, financing, and trading levelsWith the underlying economic indicators improving, the Chinese stock market is bound to regain its fundamental health," he remarked.

ICBC Credit Suisse Fund pointed out that recent market corrections stem from both internal and external factorsOn the external front, the Federal Reserve is still in its tightening phase; combined with escalating geo-political tensions exacerbating U.S

Treasury yields to reach heights not seen since 2007, notably surpassing 5%. Internally, indicators such as PMI, industrial investments, exports, and consumer spending show signs of stabilization, although challenges remain in the real estate sector.

“Currently, the market is buried under numerous pessimistic expectations in terms of position and valuationWhile short-term market movements may remain uncertain due to investor sentiment, indicators suggest that as policy measures effectively mitigate prevailing challenges and corporate earnings approach their nadir, the market's underlying dynamics are revealing signs of recovery, which could defy excessive pessimismThe fourth quarter remains a critical window for the implementation of beneficial policies,” observed ICBC Credit Suisse Fund.

Hua Bao Fund suggests that the current market configuration might have already witnessed the formation of “three bottoms,” indicating a less-than-pessimistic outlook: Firstly, a “valuation bottom,” with current A-share valuations hovering at historical lows; Secondly, a “profit bottom,” after an 8-quarter decline, corporate earnings are nearing their lowest; Lastly, an “inventory bottom,” since net profit growth and market valuation generally precede inventory corrections, conservatively estimating that the inventory cycle may hit its floor by early next year, potentially resulting in A-shares leading the cycle rebound.

"As the market consolidates its bottom, balancing broad indices could yield favorable outcomes