Groups of Unknown Investors Funneling Capital to China's Plunging Equities

A rescue operation is underway in China's stock markets as large and peculiar inflows into blue-chip funds suggest a fall by state-backed investors. It is unclear who is purchasing or if they have enough resources to turn around the declining market.

However, analysts say that the buying pattern indicates the "national team" of state-backed investors, many of whom have recently claimed they have turned into buyers. In January, more than $17 billion flowed into four Chinese-domiciled exchange-traded funds tracking the CSI 300 index, according to S&P Global Market Intelligence.

The S&P 500, a market eighteen times larger, has received about $20 billion in significant inflows, and no offshore CSI 300 tracker drew comparable heavy buying. Domestic ETF inflows last week were the highest since 2015, according to Goldman Sachs. The E Fund CSI300 Index ETF assets under management (AUM) rose more than 70 percent this month alone to 81.6 billion yuan ($11.37 billion). Large inflows were also seen in other big-cap ETFs such as Huatai-PB CSI300 ETF, ChinaAMC CSI 300 ETF, and Harvest CSI300 ETF.

Meanwhile, foreign investors sold 18.2 billion yuan worth of Chinese stocks through the cross-border Connect scheme in January, the sixth consecutive month of net selling. Indications of state-backed buying are the most recent evidence of increased official attempts to stabilize the market, and similar support in 2015 steadied markets, albeit briefly.