abc5 January 2024Global Research and Evidence LabChina Equity StrategyAll you need to know about the 'national team'What is the 'national team'?In Oct 2023, Central Huijin Investment Ltd., (Central Huijin) announced that it would increase its stake in the Big-4 SOE banks. In addition, it would buy ETFs and will continue buying going forward. By stepping in, the 'national team' has drawn investor attention amidst subdued market sentiment. To examine the investing style and potential size of the 'national team', we have studied the group's investment behaviour during the broad-based A-share market downturn in mid-2015 and how it exited later. Our estimates are based on the top-10 float shareholders disclosed by A-share listed companies. We comb through the shareholdings of Central Huijin and its asset management arm, China Securities Financial Co (CSFC) and its asset management programme, and the investment platforms under the State Administration of Foreign Exchange (together the 'national team'). We have excluded the financials stocks where Central Huijin was already a major shareholder before the mid-2015 A-share market slump.'National team' was on par with MFs/insurers in holdings; may deploy via ETFWe estimate the group's aggregate shareholdings at c.Rmb1.24trn in market cap as of end-Q315 (vs. Rmb1.41trn/Rmb1.37trn held by mutual funds (MFs) and insurers), accounting for 7.7% of the A-share free float at that time. The group's actual shareholdings should be larger, as our estimates include only the stock holdings of the 'national team' entities that were among the top-10 float shareholders of A-share listed companies. Given the current market context, we think it is more likely for the group to increase holdings through channels such as ETFs. We see potential for a sharp increase in the group's total position in extreme case scenarios. 'National team' tends to act in a counter-cyclical mannerThe time series data of the number of A-shares held by the 'national team' (Figure 3Number of A-share stocks held by the 'national team') and the market cap of its A-share position (Figure 6The market cap held by the 'national team's and its percentage of the total A-share fre float market cap) show that the group has a tendency to act in a counter-cyclical manner. The group didn't change its position much until end-2020, but only fine-tuned the position due to market movement. It is worth mentioning that the 'national team' reduced its A-share position in 2021 when the valuation was rich, reflecting its valuation discipline. CSI300 is trading at 10.7x trailing PE, 1.4SD below its five-year average, while the trailing PB is close to the historical trough. In this context, the 'national team' signalling its intentions to step in suggests that the current A-share investor sentiment may have turned overly bearish. If the stock index pulls b...
