China's 'National Team' Intervenes to Stabilize Market as A-Share Indices Show Mixed Performance

China's three major A-share indices closed with mixed performance on the 20th (Monday). On the evening of the 19th, China Reform Holdings Corporation (CRHC) announced it has used over RMB 50 billion yuan (hereinafter same) in special relending funds and matching capital for share buybacks and增持 to increase holdings in central SOE stocks.

On the 20th, the Shanghai Composite Index closed up 0.85% at 3,796.28 points; the Shenzhen Component Index fell 0.71% to 13,610.23 points; the ChiNext Index rose 0.42% to 3,443.1 points.

The total trading volume of the Shanghai and Shenzhen markets reached 2.7022 trillion yuan, an increase of 47.3 billion yuan compared to the previous trading day.

According to First Financial Daily, China Chengtong also announced it has completed nearly 10 billion yuan in增持, and will continue to use its own funds and relending for share buybacks and增持 to make large-scale purchases of state-owned central enterprises, technology firms, and ETFs, fully committed to maintaining stable capital market operations.

In addition to the 'National Team,' numerous listed companies released profit forecast upgrades and增持/buyback announcements over the weekend. Several securities firms announced share repurchases, and more private equity funds joined the self-purchase trend.

The aforementioned share buyback and增持 relending program is one of the two monetary policy support tools established in September 2024. For over two years, regulators have continuously strengthened strategic reserve capacity and market-stabilization mechanisms, focusing on enhancing the intrinsic stability of the capital market.

The China Securities Regulatory Commission (CSRC) will soon convene a symposium with representatives from securities, fund institutions, and listed companies to gather opinions on promoting the stable and healthy development of the capital market. Historically, the CSRC has held such meetings during critical market periods, which is also seen as a positive signal to stabilize market sentiment.

The past week saw A-shares experience severe volatility, particularly with tech stocks suffering sharp declines.

Industry insiders attribute this round of declines to both internal and external factors. Externally, negative impacts from South Korean and U.S. markets continued to spill over into A-shares, while repeated fluctuations in the Middle East situation have continuously introduced geopolitical risks.

Internally, the rapid surge in tech stocks earlier led to a concentrated release of profit-taking and fear-of-loss positions, resulting in a significant pullback in tech shares.

'The sharp correction in A-shares and overseas tech stocks was directly triggered by deleveraging in overseas trading, with A-shares indirectly following suit,' said Mu Yiling, Chief Strategist at Guojin Securities. South Korea's market margin balance has clearly declined, and implied volatility in the options market has rapidly decreased, indicating a withdrawal of leveraged funds.

Li Qiusuo, Chief Domestic Strategy Analyst at CICC Research, also believes that the contagion of risk sentiment from overseas market volatility is a key factor behind the A-share correction.

'This round of AI sector rally was not an isolated trend in South Korea alone, but a global phenomenon. The origin lies in the U.S., with South Korea being the market where the rally was most extreme. Related sectors in Japan and many other global regions also surged significantly, and A-shares were no exception,' industry insiders noted.

They added that the recent synchronized decline in A-shares is the result of global funds rebalancing positions across markets based on the same AI narrative. Whether driven by capital or sentiment, the synchronized selling across markets is a real phenomenon.