Chinese stocks edged higher on Monday after reports that regulators planned to discuss measures to support capital markets, with the CSI 300 Index gaining around 0.5% in early trade. According to Reuters, China's central bank and securities regulator were scheduled to meet brokerages and fund managers to discuss policy tools to support capital markets. The Shanghai Composite Index advanced 0.3%, recovering marginally after plunging 8.5% in October, its worst monthly performance in more than a decade. The positive market reaction comes after reports that all three major Chinese financial regulators will hold meetings with major banks to study optimizing lending programs to support stock buybacks, as reported by the 21st Century Business Herald.
China's financial regulators will hold two separate meetings on November 2 to discuss measures supporting the capital market amid the ongoing stock decline. According to BigGo Finance, the People's Bank of China (PBOC) and China Securities Regulatory Commission (CSRC) will convene a meeting with securities firms and fund companies in the morning to study ways to promote the use of capital-market support tools. Simultaneously, the PBOC, National Financial Regulatory Administration and CSRC will hold another meeting with major banks focused on optimizing the stock buyback and increased-holdings relending policy, both meetings scheduled for around 9 a.m. at the PBOC. An insider at a Chinese securities firm confirmed that notification methods were not uniform, with either direct notification or through the regulator's relevant liaison executives. Some large Beijing-based brokerages did not give a clear answer on whether they would attend.
Despite regulatory support reports, concerns surrounding state-backed conglomerate Zhuhai Huafa Group continued to weigh on market sentiment, with shares of the group's listed units including Huafa Properties, Advanced Fibre and Weiyue Group extending their declines in early trade on Monday. According to Reuters, investors have been monitoring the group after reports last week that it had failed to repay two maturing trust products and was seeking extensions on some bank loans. The developments have raised concerns about liquidity risks and their potential spillover into China's financial markets. The pressure has also spread to bond funds, with exchange-traded funds tracking bonds facing selling pressure following signs of heavy redemptions on Friday. A listed fund investing in 30-year Chinese government bonds fell 0.3% in early trade on Monday, after declining nearly 1% in the previous session.
A major state-owned bank plans to increase a lending quota by up to 200 billion yuan to two state asset management firms — part of the so-called "National Team" — to support stock purchases, as reported by Cailian. The quota to the state-owned asset managers would exceed the 180 billion yuan initially allocated to China Reform Holdings Corp. Ltd. and China Chengtong Holdings Group Ltd. when they first joined the program. A number of exchange-traded funds known to be favored by state-linked investors saw record inflows in October, according to Bloomberg. The enhanced lending support represents a significant escalation in China's efforts to pump fresh liquidity into the market and stabilize equity prices. It remains unclear how much of the funds in the latest quota will be deployed to immediately buy Chinese stocks, though they are a clear signal that regulators are trying to pump fresh liquidity into the market.
The CSI 300 Index tumbled into a bear market in October, falling 8.5% and dropping for a record 12 straight weeks. According to Bloomberg, these efforts would add to steps taken by China last month to stabilize its equity market, but those measures have so far proved insufficient against the backdrop of a weak domestic economy and doubts over AI earnings. The market correction deepened significantly in October, with the Shanghai Composite Index losing the 3,600 level, closing at 3,599.02 on Oct. 30. The Shenzhen Component Index, ChiNext Index and STAR Composite Index all hit stage lows the same day. For the full month, the STAR Composite Index and ChiNext Index each fell more than 20%, the Shenzhen Component Index dropped 15.94% and the Shanghai Composite Index fell 6.33%. However, UBS economist Yu Song suggested that the likelihood of a broad-based stimulus package similar to the one announced in September 2024 remained low, suggesting that investors may have to temper expectations of aggressive policy support.
"The meeting will have a positive impact on the market in the short term, but policy signals like this cannot change the underlying economic trajectory on their own," said Shen Meng, director at Beijing-based investment bank Chanson & Co., as reported by Bloomberg. "A sustained improvement in the medium- to long-term outlook would still require structural reforms and supportive fiscal or industrial policies." The relending programme allows companies and major shareholders to draw on bank lending, backed by central bank funding, to buy their own shares, with the scheme representing China's continued efforts to stabilize its equity market amid ongoing economic challenges. The dual meetings on November 2 signal China's renewed commitment to using all available policy tools to support the capital market and address the deepening correction in Chinese equities, though concerns over individual companies like Huafa Group continue to create market volatility.
