In the Chinese stock market, there is such an existence called the National Team (國家隊). The National Team has interfered in the financial markets at times when necessary to support a certain stance and of course to give confidence to the market, at the direction of the Chinese government of course. You can say that the National Team represents the hand of the government in the financial markets. The first question one would ask is: What makes up this National Team?
Background
The National Team is made up of 5 groups:
- Central Huijin Investment Co Ltd is a Chinese sovereign fund with shareholdings and direct control over the 4 big banks (+ a few others), various insurance and investment companies. It is the domestic arm of the sovereign wealth fund of China and also a subsidiary of China Investment Corporation. CIC is China’s largest sovereign wealth fund.
- China Securities Finance Corp. Ltd is a state owned financial services company providing funds and services to securities firms. It also monitors the securities firms to ensure a vibrant and stable market.
- State Administration of Foreign Exchange is as what its name suggested – it manages the foreign exchange reserves of China.
- The National Council for Social Security Fund – as point 3 above, it is quite obvious what it is from the name.
- The China Integrated Circuit Industry Investment Fund, also known as the Big Fund, aims to help China achieve self-sufficiency in the semi-conductor industry.
The 5 overarching entities above and the whole list of companies and organisations they control gives you an idea of how much money and power they have. Together they form the National Team. Just like how when the power team in anime gives us the excitement when they came out, when the National Team comes out you know shit is getting serious.
The SSE Composite Index
A stock market index of all the shares traded on the Shanghai Stock Exchange, the 3000 mark is a psychological support and also a joke to the investors. The 3000 mark was achieved in 2007, and after 17 years, despite amazing economic growth, the stock market has not rewarded its investors with appropriate returns. While I had said earlier that I believe this will change, such a change will not come overnight.
3000 has become the key psychological support which the National Team was trying to defend and have been doing so. However while this worked for the earlier times, this round seems to have backfired as capital has been aggressively flowing out of the markets. Investors now see the National Team as an entity there to clean up their mess and they can freely exit the market without any concerns.
Sources has stated that after the Third Plenary Session of the 20th Central Committee of the Communist Party of China concluded on 18 July 2024, the National Team has stopped trying to save the market and the 3000 psychological line. Whether it is due to a lack of funds, or the unwillingness to save a market which has no intention to save itself, or the unhappiness of being made use of by the market, or perhaps the government thinks that their job is done (unlikely), one thing we can infer – the market now live and die by its own, at least for now.
Different Analysis
As usual, there are a lot of analysis floating around the market. Some say that they will be hands off the market for a while as they are very unsure of what is going to happen next. Some say that it is a good opportunity to scoop up the lows. Even the experienced have differing views. Hence it is very important to conduct research on your own, form your conclusions and act based on what you have determined instead of blindly following the others.
For example in my case, I have said that the Chinese government is removing the cancer in the stock market, and that while in the long term the markets will be healthy again, the short term may see turbulence caused by the ‘treatment’. While the withdrawal of the National Team was out of my expectations, the results of a short term fall was within it. I am fully prepared for it, and will act accordingly to my plan when the time comes. But in a short explanation: If the prices of the shares fall below my average buy price, I will continue to scoop up more bit by bit. Else, I will either keep my money or put in other stocks which I have earlier identified which may be in a different market, such as the Singapore supermarket chain Sheng Siong Group.
At this time the value of your own research and planning, customised for your own unique circumstance, will come in handy.
Three Gorges Vs The Market
Earlier we had said above that the SSE Composite Index has fallen. The same is for the CSI 300, an index of the China A shares. We see below the weekly chart of CSI 300.
Three Gorges is a company which I had analysed, believed firmly in and invested in. This was unexpected, but surprisingly its share price went up against the market. I will not be so brazen and arrogant to say that this success is due to my skill and knowledge, but I thought this is a good example of when a good and proper research is done, it increases the likelihood of success. As I have always mentioned, a good and proper homework should not only factor in the company’s fundamentals, but also the country’s (and by extension the global) politics, economics and current affairs. So that even when the National Team withdrew its support, the company can still do well because it does not need to depend on the National Team.
Conclusion
China’s stock market has a lot of potential, and I am still overall bullish on it. That being said, I also expect it to be hit hard in the upcoming financial crisis. The withdrawal of the National Team has also rubbed salt into the current wound. But I believe in my own research, and will follow my plan unless something bigger happens. I will continue scooping the lows whenever I can.
