China’s Sudden Stock Rally Points to ETF Buying by State Funds

(Bloomberg) — Chinese equity benchmarks rebounded in afternoon trading, with a jump in turnover in some major exchange-traded funds raising speculation that buying by state funds maybe behind the reversal.

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Traded value of the Huatai-Pinebridge CSI 300 ETF surged to 15.3 billion yuan ($2.1 billion) on Thursday, the highest since 2015, while those for Harvest CSI 300 Index ETF and E Fund CSI 300 ETF also saw extraordinary spikes. That coincided with gains in the CSI 300 benchmark of mainland shares, which closed 1.4% higher after declining as much as 1.8%.

“The national team is likely stepping to stabilize the market as they have done in previous market crashes,” said Marvin Chen, a strategist at Bloomberg Intelligence.

Foreign investors were again net sellers of mainland equities after they dumped 13 billion yuan ($1.8 billion) worth of shares in the previous session, the most in more than a year.

READ: China’s Stock Slump Shows No Signs of Let-Up as Risks Abound

The rare advance in Chinese gauges comes after selloff extended into the new year amid skepticism over the economy. The latest economic data showed the country’s property crisis deepening, while geopolitical tensions with the US and Beijing’s policy whims continue to put investors on edge.

The Hang Seng China Enterprises Index finished the day 0.8% higher, reversing an earlier decline of 0.6%. Down 10% this year, the HSCEI gauge is the world’s worst-performing major index.

During previous market slumps, state funds were suspected to be behind increases in the turnover of such ETFs as they stepped in to rescue the market. For instance, Central Huijin Investment Ltd., a sovereign wealth fund, bought an undisclosed amount of ETFs in October and vowed to keep increasing its holdings.

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READ: Record Turnover in China ETFs Fuels State Buying Speculation

Such ETF-driven stock market gains, however, have barely lasted more than a few days. The moves may help improve…