China pumps $11.5B into ETFs to revive its AI stock rally
What's the deal? China's state-backed "national team" of banks and funds poured a net $11.5bn into nine exchange traded funds on Tuesday, the second-highest daily total on record, according to Bloomberg data. An unusually large share went into ETFs tracking the country's two main technology indices: Shanghai's Star 50 and Shenzhen's ChiNext.
Why now? Chinese tech shares have faced heavy selling since July, with the Star 50 — once up more than 60% for the year — now in the red. The CSI 300 benchmark is down more than 11% this year, even as Wall Street's S&P 500 and Nasdaq 100 both post double-digit gains.
The buying worked, at least for a day. The Star 50 jumped 9.9% and ChiNext rose 6.4% on Wednesday, while the CSI 300 gained 2.3%. Inflows into ChinaAMC's Star 50 ETF hit $1.7bn on Tuesday; EFund's ChiNext ETF drew $1.4bn.
What's the endgame? The focus marks a shift in strategy. "Clearly there is a regime shift from the previous state-backed ETF buying," said Song Zhe of BNP Paribas Asset ManagementDealroom has a profile for this one. Try Dealroom →. "In the past the majority of the inflow would be in the CSI 300." He added that Beijing views ChiNext and the Star board as representing "the future of China."
The move came alongside other support. Chinese authorities cut the rate on their relending facility for share buybacks, boosted swap operations, and encouraged buybacks. Memory chipmaker CXMT, one of China's largest listed firms, said it would buy back shares worth US$343.8M to US$687.5M.
The rally spread to Hong Kong-listed AI labs, with Z.AI and MiniMaxDealroom has a profile for this one. Try Dealroom → jumping 9.6% and 7.5% respectively.
What could go wrong? Not everyone is convinced. "This news over the last couple of days is almost proof that the equity market is too reliant on the government for our liking," said Sam Konrad of Jupiter Asset ManagementDealroom has a profile for this one. Try Dealroom →, adding it "might help support the market in the short term" but does not change the long-term outlook.
Retail investors, who drive China's volatile markets, are staying on the sidelines. Outstanding margin financing loans — a proxy for retail sentiment — have fallen to US$316.3B, down from a peak above US$412.5B in late June.
The signal: By leaning into tech-focused boards rather than the broad market, Beijing is signalling that strategic technology shares are worth defending directly. It may steady sentiment for now, but state buying alone cannot resolve the underlying worries over valuations, weak demand, and uncertain AI earnings.
Read more: Financial Times
Image credit: Generated with Gemini
